Wealth management specialists Citadel’s Chief Economist says South Africa has narrowly escaped a technical recession thanks to the strong Q3 2022 GDP figures released today.
South Africa – The welcome news today that South Africa’s economy grew by 1,6% in the last 3rd quarter means that South Africa escaped a self-induced technical recession for now, according to Citadel’s Chief Economist, Maarten Ackerman.
Ackerman said the third quarter (Q3) 2022 Gross Domestic Product (GDP) figures released by Statistics South Africa (StatsSA) today were certainly better than economists had expected, however, this was no guarantee that the country would avoid a downturn in 2023.
“The good news is that the economy grew beyond expectation, after contracting by 0,7% quarter-on-quarter in the previous quarter which, if repeated in Q3, would have meant a technical recession for our country. This result was particularly surprising given the headwinds South Africa experienced in Q3, including intensifying loadshedding, strikes and global factors that impacted the economy,” he says.
“Seen together, these results bring the South African growth rate over the past year to about 4,1%, which is a very strong number considering current conditions. However, we need to remember that this comes off a low base, and local and global headwinds experienced right now and early next year could still bring on a recession in 2023,” says Ackerman.
The Q3 GDP results took the South African economy back to its Q4 2018 level, prior to the start of the pandemic.
CONSUMERS ARE STILL STRUGGLING
Although the overall economic data was positive, Household Final Consumption – what local consumers are spending – declined in Q3.
“We are a consumer-based economy, and our consumer spending is down by 0,3%. This tells us that our consumers are under severe pressure due to higher interest rates and higher inflation. Everyone is paying more for their basket of food, services and petrol, and we’re seeing spending cutbacks on food, beverages, furniture and household appliances, equipment, clothing and recreation. Unemployment is at an all-time high and many consumers are running out of the excess savings that they had built up during the pandemic,” says Ackerman.
Consumer spending and economic growth were both expected to decline over the next 18 months, Ackerman warned.
GFCF PRINTS POSITIVE FOR FOUR CONSECUTIVE QUARTERS
One of the biggest highlights of the Q3 GDP results was that South Africa had a fourth consecutive positive quarter for Gross Fixed Capital Formation (GFCF) which, over the past decade, has had more negative quarters than positive ones.
“Once again, it is promising to see positive investment growth since this is the first step towards higher sustainable growth. It is clear evidence of reinvestment back into the economy, which set us up for long-term economic growth,” says Ackerman.
Ackerman concludes that Eskom’s recent announcement that South Africa needed to brace itself for at least 18 months of intensified loadshedding was bad news, but it was a relief to see that investment in capital expenditure remained strong, to the long-term benefit of the economy. The liberalisation of the energy sector also provided hope for long-term economic progress.