Unpacking the newly released second quarter (Q2) economic growth figures for South Africa, Citadel’s Chief Economist Maarten Ackerman says the areas of the economy that saw the greatest growth in the past quarter could only achieve these numbers with a fast transition to alternative energy given that loadshedding continued relentlessly.
StatsSA released South Africa’s latest gross domestic product (GDP) growth figures earlier today. Assessing South Africa’s 0.6% growth rate for the past quarter, as measured quarter-on-quarter since Q1, and its 1.6% growth at the same time last year or 0.9% growth since the beginning of the year, Ackerman notes that the rand billion number for South Africa’s GDP this past quarter is “in fact still very close to where the country was in mid-2022.”
SOUTH AFRICA’S GROWTH IS MAINLY HAMPERED BY STRUCTURAL CHALLENGES
“The country’s economy was R1,161 billion strong in the third quarter of last year versus R1,160 billion now. Also considering that we’ve seen almost no growth since South Africa’s pre-COVID levels, it means the country has seen very flat GDP growth over the past few years, mainly due to the structural challenges it is facing,” says Ackerman. He cites loadshedding as one of the country’s key challenges.
“We need to remember that we won’t grow this economy if we don’t rebuild its infrastructure first.” The sectors that performed the best in the second quarter of 2023 – manufacturing, agriculture and mining – did so because they made use of alternative energy, says Ackerman. “Loadshedding is still ongoing and as a result, the construction industry is still under water, which is a great pity, because construction is an important job creation sector in the economy.”
“While it looks positive that gross fixed capital formation (GFCF) was up by a very strong 3.9% – driven by machinery and construction works – this can partly be ascribed to the energy crisis which forced companies to invest in alternative energy sources such as solar panels and lithium batteries. However, we have to acknowledge that this is the seventh positive quarter in a row for GFCF. We have not seen a growth streak like this for GFCF in many decades and this speaks to both private and public companies reinvesting back into the economy rebuilding capacity,” says Ackerman.
THE SOUTH AFRICAN CONSUMER IS UNDER SEVERE STRAIN
“The GDP data clearly shows that consumers are under pressure,” Ackerman laments. “Consumer spending is typically a positive sector for the economy, but in the past quarter we saw a 0.3% decline in household spending. Households still spent on services, but their spending declined on durable, semi-durable and non-durable goods. This gives us an indication of the headwinds that consumers are facing. If you look at the areas where they spent, such as restaurants and hotels, which showed a marked 4.1% growth in spending, you could argue that this was due to loadshedding, which forced consumers to look for alternatives when they could not eat at home.
PUBLIC SECTOR EXPENDITURE REMAINS HIGH
Ackerman further notes that government expenditure was up by 1.7%, “making it the strongest quarter for government spending in many years”. “This speaks to an increase in the number of civil servants and their wages. This is typical in a run-up to elections and begs the question of sustainability. Finance Minister, Enoch Godongwana, himself yesterday said this spending needed to be curtailed and new appointments of civil servants had to be placed on hold to better balance the national budget.”
“Overall, South Africa’s economic growth is looking slightly better than expected, however due to the structural issues we face as a country, we have not achieved the sustainable numbers required for job creation,” says Ackerman.
He encourages South Africans to brace themselves for a tough economic period lying ahead. “We predict that, in the next 12-18 months, we might see growth coming down and settling at about 1.5% or 1.16% for the year. Things will most likely get tougher for consumers, as the world faces further economic stress, loadshedding continues and the job market takes further strain.”