Stat SA announced today that the 2021 first quarter Gross domestic product (GDP) increased at an annualised rate of 4,6%. Maarten Ackerman, Chief Economist at Citadel, has offered his expert commentary on what this means for South Africans.
Please refer to the Stats SA GDP presentation for graphics.
Five key insights:
- ECONOMY GAINING MOMENTUM
The quarter-on-quarter annualised figure (at 4.6%) was better than the expected 3.2%, however this has not affected the rand or bond markets, which both remain stable. This strong number still speaks to the low base effect from last year but indicates that the economy is opening more and gaining momentum. South Africa is now in the third positive quarter since Covid-19 struck the economy.
- SECTORS
Imports secured the highest growth in Q1 2021 with an increase of 26,5%. The mining, finance and trade sectors performed exceptionally well in Q1, which is indicative of the rest of the world opening up. Mining is an integral sector for job creation and a large contributor to tax revenue. Following negative growths over previous quarters, the manufacturing and construction sectors are finally showing positive growth. Despite negative growth in the agricultural sector in Q1, this sector was the ‘rockstar’ of 2020 and still shows annual growth year-on-year of 7.5%.
Exports experienced a negative quarter, unlike last year when South Africa had massive export numbers and imports were weaker (resulting in a tailwind for the rand with a positive trade surplus). If this string continues, the trade surplus will disappear quickly, and South Africa may see a trade deficit soon. This would imply that the rand is probably close to the bottom of this cycle and South Africans will likely see a weaker rand in months to come.
- HOUSEHOLD EXPENDITURE
It is promising to see household expenditure up 4.7% which is above the long-term average and indicates that households are slowly getting back on their feet after the financial repercussions of the pandemic. The data indicates that the majority of money is being spent on clothing, footwear, furniture, services, etc; however there has been a decline in spending at restaurants and hotels. This is to be expected in comparison with the high base of Q4 2020 when the hospitality industry reopened.
The massive increase of 20% in durable goods expenditure shows that consumers are feeling more confident about the future as one would not tuck into durable goods if one was concerned about the interest rate or job security.
Unemployment in South Africa is at an all-time high of 32.6%.
- GROSS FIX CAPITAL AND BUSINESS CONFIDENCE
Gross Fix Capital formation unfortunately printed negative again in Q1. One hopes to see this turn positive on a sustainable basis as it would provide confidence in the economy and business would be more willing to invest in capital expenditure in the long-term, paving the way for a stronger economy.
Over the past few years, South Africa has experienced a lack of business confidence and numerous negative quarters. As the economy started to reopen towards the end of 2020, both Q3 and Q4 showed growth. This was unfortunately short-lived as Q1 2021 is negative again. This emphasises the need for government to do more in terms of implementation and reform to create an environment where business is more confident and happier to invest.
- MOVING FORWARD
These numbers may be promising but one must consider that the South African economy had somewhat flat-lined three years prior to Covid-19 (and the population continued to grow). South Africa experienced a significant drop in Q2 2020 due to the economic ramifications of lockdown and is now recovering at a steady rate. If this continues, South Africa may reach pre-Covid levels by the end of the year – but this is not enough considering how stagnant the economy was prior to then. South Africa needs to grow at a rate of over 2.5% to thrive.