During the first quarter of 2023, the South African economy managed to thwart the gloomy predictions amongst some economists, posting a real growth rate of 0.4%, compared to the last quarter of 2022, when the economy contracted by 1.1%.
Any measure of positive economic growth is most welcome and, against the background of electricity rationing and the highest interest rates in 15 years, is actually quite remarkable. The resilience of the economy in the face of daunting challenges, especially in the area of logistics infrastructure, did not escape the participants in a Thomson Reuters poll conducted before the data release by Statistics SA, which resulted in an identical consensus forecast.
A technical recession has now been averted, as it takes two consecutive quarters of a shrinking GDP to fit the definition of a recession. Capital market reaction to the latest GDP figures was positive, with South Africa’s 10-year bond yield dropping by 38 basis points and the rand gaining 3.5% against the US dollar in the space of one week.
Several reasons exist for the ability of the economy to have avoided a recession in the first quarter, including the following:
The sector for wholesale trade continues to flourish, having increased its sales values in the first quarter of the year by 3.3% in real terms (year-on-year). The sector has long since fully recovered from the effects of the Covid pandemic and is now 16% higher than in the first quarter of 2019 (pre-Covid). Although retail trade sales have come under pressure due to higher prices and higher interest rates, the sheer magnitude of the wholesale trade sector has managed to make a huge contribution to sustained positive economic growth. During the first quarter, the value of wholesale sales amounted to R843 billion and, at current growth trends, the sector is on track to reach a total sales level of more than R3.7 trillion for calendar 2023.
The first three months of 2023 represented the sixth successive quarterly gain in employment creation of noteworthy proportions, with more than a quarter of a million new jobs having been created. The total number of employed persons is now more than 2 million higher than in the disastrous second quarter of 2020 (when the Covid lockdowns were at their harshest).
In March, South Africa’s manufacturing sector recorded its highest ever level of sales (at current prices). At R291-billion, the March sales figure was marginally higher than the previous record, set in November last year. When adjusted for inflation, however, the March sales figure is the second highest on record. During the first quarter of 2022, total manufacturing sales amounted to R763-billion, eclipsing the sales of the first quarter of last year by 10% (in nominal terms) and by almost 4% in real terms. Between January and March, seven of the key manufacturing groups recorded positive real growth rates, compared to the 4th quarter of last year.
Arguably the most encouraging aspect of the latest GDP data can be found in the solid contribution of capital formation, which increased by almost 5% in real terms (year-on-year) and was more than 12% up from the first quarter of 2021. Fixed investment in new production capacity and infrastructure is clearly on a growth path, albeit jittery, due to the higher interest rates. Capital formation has also more than fully recovered from the Covid pandemic and is destined to play an invaluable role in the quest for future energy security.