Strong rebound, but growth momentum expected to slow

Sanisha Packirisamy, Economist at Momentum Investments

Herman van Papendorp, Head of Investment Research & Asset Allocation at Momentum Investments

Highlights

• After crashing 51.7% in quarter-on-quarter seasonally adjusted and annualised (q/q saar) terms in the second quarter, real gross domestic product (GDP) bounced by more than expected at 66.1% in the third quarter. Economic activity was nevertheless 6% weaker on a year-on-year (y/y) basis. The third-quarter GDP outcome surprised the November 2020 Reuters Econometer median growth expectation to the upside. Analysts anticipated GDP to strengthen by 34.6% q/q saar, but high-frequency data likely led many analysts to revise this number higher in the run-up to the release.
• An easing of the lockdown restrictions enabled a revival in mobility indicators in the third quarter of the year. These indicators have continued to pick up in the fourth quarter in line with the move to level one. Shopping malls have reported an improvement in footfall, up to around 80% of levels observed this time last year.
• According to the production stack-up of GDP growth, the largest contributors to activity included the manufacturing, trade and mining sectors, which added 16.2%, 14.6% and 11.8%, respectively, to the quarterly annualised growth figure. None of the eleven contributing sectors detracted from the quarterly growth rate.
• Based on the expenditure stack-up of GDP growth, household spending added the most, due to a sizeable contribution from expenditure on transport, alcoholic/tobacco, clothing and food. A notable jump in construction works contributed to an increase in fixed investment, while businesses whittled down inventory levels even further, particularly in the trade and mining sectors.
• After a sharp pullback into May 2020, South Africa’s (SA) leading indicator has been drifting higher since. Business confidence similarly showed an improvement in the fourth quarter release. Nonetheless, the sustainability of the recovery remains questionable as drivers behind consumer and business spending remain soft.
• We expect growth to contract by around 8% this year. We are pencilling in a shallow recovery of 2% in 2021, as an increase in the number of business closures, persistently higher levels of unemployment, fiscal stress and ongoing challenges to electricity supply detract from the expected upturn.

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