Statistics South Africa (StatsSA) reported on 8 June that the South African economy expanded by 1,1% quarter-on-quarter (q-o-q) and by 4,6% q-o-q on a seasonalised adjusted an annualised rate (saar).
Lullu Krugel, chief economist for PwC Strategy& Africa, and Dr Christie Viljoen, PwC Strategy& economist unpack the numbers.
Despite the positive growth rate, the economy was still 3,2% year-on-year (y-o-y) smaller during the period. This was slightly worse than the 3% y-o-y decline projected by a survey of local economists but less severe than the y-o-y readings seen since 2020Q2.
The negative y-o-y reading reflects an economy which remains smaller than it was in the pre-pandemic (2020Q1) period before strict lockdown measures resulted in a large recession during the second quarter of last year.
Three out of 10 industries tracked by Stats SA recorded y-o-y growth in the first quarter: agriculture, government services and mining. This means that these sectors are now larger than the pre-pandemic period. Agriculture, which has been steadily growing since mid-2019, expanded by 7,5% y-o-y in 2021Q1.
General government services continued with its long-standing expansion – albeit at a slower pace compared to a y-o-y growth rate of 0,5% seen from x to y.
The mining sector was one of the largest contributors to overall growth with an expansion of 3,5% y-o-y.
South Africa measured a 25,1% y-o-y increase in exports during 2021Q1 on the back of a 32,4% y-o-y increase in the value of mineral sales. This, in turn, was driven by a recovery in global mineral demand and rising international commodity prices.
All other industries were y-o-y smaller during 2021Q1. This was not unexpected.
While utilities (-0,9% y-o-y) and personal services (-0,6% y-o-y) are close to their pre-pandemic levels, many other industries are still struggling to recover. Construction (-17,5% y-o-y), for example, was suffering in the first quarter from a drop in fixed investment (-13% y-o-y) due to weak business confidence. The trade, catering and accommodation sectors (-3,8% y-o-y) were coping with a weaker household final consumption expenditure (-0,9% y-o-y) due to job losses, uncertainty over the economic outlook, as well as the near absence of international tourists.
More recently, the second quarter has seen some positive economic trends.
The IHS Markit South Africa Purchasing Managers’ Index (PMI) recorded positive private sector growth in both April and May, including an increase in new orders. Survey panellists reported a solid increase in output during May on the back of new business inflows. New orders from international clients increased more moderately, with demand improvements largely based on better domestic sales.
At the same time, global supply chains are stretched as manufacturers worldwide buy raw material inputs to keep up with the strong recovery in demand. The latest PMI report noted that South African private sector companies also experienced a lengthening of suppliers’ delivery times over the past two months.
PwC’s economic scenarios for 2021 are influenced by different perspectives on the severity of a third wave of Covid-19 infections. The severity of the mid-year Covid-19 wave, and the accompanying strictness of associated lockdowns, will primarily determine the nature of the short- to medium-term economic recovery. By 6 June, South Africa had nearly 62 000 active Covid-19 cases – up from 20 000 in late-April. The seven-day new infection rate also climbed to its highest level in four months.
With rising new infections, South Africa moved from Level 1 lockdown in March, April and May to an adjusted Level 2 lockdown from June 1. Additionally, we consider the adverse effect of loadshedding and the positive impacts of fiscal and monetary stimulus on the economy.
Our baseline economic scenario for this year assumes an adjusted Level 3 lockdown in July to combat the rising third wave of Covid-19 infections. While a subsequent easing in restrictions is expected as the winter thaws in August and September, South Africa is anticipated to remain in Level 1 lockdown from September towards year end.
Based on current information and our forecasts, we expect full-year GDP to return to 2019 levels (that is, pre-pandemic) by 2023. We also expect total employment to return to 2019 levels by 2025.
However, by then, a large number of new aspiring workers would have been added to the labour force. As such, we anticipate the official (narrowly defined) unemployment rate to be stuck around the 32% level over the long term.