GROWTH SURPRISED IN QUARTER 3 of 2022: Year on Year (YoY) Gross Domestic Product (GDP) growth for the third quarter of 2022 (Q3 2022) was a sturdy 1.6% QoQ (seasonally adjusted). This figure exceeded the consensus forecast for an expansion of around 0.4%, after a 0.7% contraction in Q3 2022. The strong GDP momentum in Q3 2022 should be seen in the context of the contraction in the previous quarter, during the disruptive floods in KZN as well as a sharp worsening of electricity loadshedding and ongoing logistical (port and railway) constraints. An unexpectedly strong 19.2% QoQ (seasonally adjusted) jump in agricultural sector GDP was one of the reasons for the Q3 2022 GDP overshoot.
GDP is computed from data gathered from ten industries. The ten industries are grouped into three sectors. The three-sector model consists of the Primary Sector, the Secondary Sector, and the Tertiary Sector. Eight industries recorded growth in Q3 2022, while two industries contracted. We look at the three sectors and at each of the ten industries. Also see the graph at the bottom.
THE PRIMARY SECTOR: This sector represents companies that are involved in extracting natural resources, like mining, and agriculture. (1) Agriculture – QoQ growth seasonally adjusted was 19.2%. Field crops and horticulture products were responsible for this expansion in Q3 2022, which significantly exceeded analysts’ forecasts. Analysts expect reasonable agricultural crops in the near term, supported by favourable weather conditions. (2) Mining – QoQ growth seasonally adjusted was 2.1%. This expansion was mainly driven by higher gold, diamond, coal, and manganese ore production. While the result was consistent with Standard Bank’s final forecast for the sector and Stats SA’s monthly mining production data, Standard Bank’s initial forecasts were more cautious given that this is one of the sectors that is bearing the brunt of Transnet’s and Eskom’s problems. Standard Bank’s forecasts for the mining and other goods-producing sectors remain cautious over the short to medium term.
THE SECONDARY SECTOR: This sector covers all those activities consisting of the processing of raw materials, like manufacturing and construction industries. (3) Manufacturing – QoQ growth seasonally adjusted was 1.5%. According to Stats SA, this growth was mainly supported by the automotive sector as well as food and beverages production. As in the case of the mining sector, this performance is a relief given the severe constraints from electricity availability as well as railway and port infrastructure bottlenecks. (4) Utilities – QoQ growth seasonally adjusted was -2.1%. This is one of only two sectors recording a contraction in Q3 2022. The decline is unsurprising given the reduction in electricity availability in Q3 2022, although Stats SA asserts that decreased water consumption also played a role.
(5) Construction – QoQ growth seasonally adjusted was 3.1%. This sector remains by far the furthest from a recovery to its pre-pandemic real GDP level – it was 19% below its Q1 2022 real (seasonally adjusted) GDP level in Q3 2022, notwithstanding this quarter-on-quarter expansion. Stats SA reports increased activities in residential and non-residential buildings as well as construction works. While the sector’s business confidence was still rather weak in Q3 2022, it has generally improved from its weakness in 2020-2021, and the recovery is consistent with the gradual improvement in perceived activity levels recorded in the BER’s (Bureau for Economic Research at the University of Stellenbosch) quarterly surveys of the sector.
THE TERTIARY SECTOR: This sector consists of the provision of services instead of end products. (6) Trade, catering, and accommodation – QoQ growth seasonally adjusted was 1.3%. The wholesale, motor trade and catering and accommodation industries were responsible for the rise in this sector’s economic activity in Q3 2022. The intensifying impact of aggressive monetary tightening will increasingly weigh on the tertiary sector’s performance, but it continues to be counteracted by the ongoing recovery in tourism spending and the backdated wage increase awarded to civil servants in November. The wholesale sector has been remarkably resilient amid severe electricity loadshedding. (7) Transport and communication – QoQ growth seasonally adjusted was 3.7%. According to Stats SA, this sector’s output was boosted by land transport and transport support services as well as communication services in Q3 2022. It again outpaced analysts forecast.
(8) Finance and business services – QoQ growth seasonally adjusted was 1.9%. Finance is our largest industry. This sector’s growth was driven by financial intermediation, insurance and pension funding, auxiliary activities, real estate, and business services, according to Stats SA. This sector’s GDP is now nearly 5% higher than it was prior to the pandemic, which makes it one of the best performing sectors on this basis (after only the agricultural and personal services sectors). (9) Personal services – QoQ growth seasonally adjusted was -1.2%. This sector’s surprising contraction was, according to Stats SA, owing to decreased economic activity for community and other producers. (10) Government – QoQ growth seasonally adjusted was 0.3%. This expansion was owing to an increase in employment numbers in national government and extra budgetary institutions, according to Stats SA.
BOTTOM LINE – GROWTH WILL BE INTERRUPTED IN 2023: The stronger than expected economic growth in the third quarter was encouraging, but headwinds abound – growth will be interrupted. The macroeconomic forecast is that our GDP is expected to grow by 2.2% in 2022, 1.5% in 2023 and 1.9% in 2024. The latest International Monetary Fund (IMF) World Economic Outlook (WEO) shows that the global economy will grow by 2.7% in 2023, versus SA’s 1.5%. Global inflation is expected to average 6.5% in 2023. In SA, the long-drawn-out impact of worsened load-shedding, inflation, and the impact of rising interest rates on household consumption remain a concern. Household consumption contributes more than 60% to our economic consumption. When consumers are hit with higher inflation and interest rates, their 60% contribution to consumption will shrink. Economic growth will drop in 2023 to an estimated 1.5%. 2023 will be a tough year.
Source: Stats SA, Standard Bank (JO:SBKJ) Research
