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South Africa’s (SA’s) economic recovery from the depths of the pandemic-induced lockdowns has generally been faster than anticipated, and some of that momentum has clearly carried over into 1Q22, with the latest print coming in ahead of most forecasts at 1.9% QoQ.
The size of the economy is now at pre-pandemic levels, with real GDP slightly higher than what it was before the COVID-19 pandemic. Key drivers of the latest growth rate were the manufacturing, trade and finance sectors, each contributing 0.6%, 0.4%, and 0.4%, respectively to the quarterly print. Interestingly, the mining sector (which up until now has been a key contributor to the SA economy amid the recent revenue windfalls which have been driven by elevated commodity prices) contracted by 0.1% YoY.
This poor performance from the mining sector is largely unsurprising, given that mining output in 1Q22 suffered interruptions from heavy rainfall and industrial action. Looking ahead to 2Q22, the general economic outlook looks clouded due to the slowdown in economic activity in SA’s key trading partner countries due to the ongoing war in Ukraine, as well as lockdown restriction (although now easing) in China.
In addition, we expect the higher interest rate trajectory to be a drag on household consumption and thereby domestic GDP growth. Furthermore, the recent floods in KZN also pose a risk to growth. The damage to key infrastructure (such as the collapse of bridges, damage to roads, ports etc.) is likely to hinder economic activity and disrupt the transportation of goods.
Further compounding the matter is the various security issues and bottlenecks on Transnet’s railway and ports, which is likely to negate the impact of the positive terms of trade shock on real GDP growth.
