South Africa: Economy contracts at sharper-than-expected pace in Q4
As anticipated, the South African economy was unable to avoid an economic contraction at the close of 2022. GDP dropped at a sharper-than-expected rate of 1.3% on a seasonally adjusted quarter-on-quarter basis in the fourth quarter, nearly offsetting the 1.8% expansion tallied in the third quarter. Q4’s downturn was the worst reading since Q3 2021 and surprised markets on the downside; a 0.4% decline had been penciled in. The contraction reflected the escalation of the power supply crisis.
Domestically, the contraction was chiefly due to a drop in public spending, which contracted 0.7% in Q4 (Q3: +0.6% s.a. qoq). More positively, fixed investment growth accelerated to 1.3% in Q4, up from the 0.3% expansion in the prior quarter. Lastly, private consumption bounced back, growing a seasonally adjusted quarter-on-quarter 0.9% in the fourth quarter (Q3: -0.3% s.a. qoq). Price pressures eased slightly in the final three months of the year, and the unemployment rate improved timidly (Q4: 32.7%; Q3: 32.9%), which likely supported households’ budgets somewhat.
On the external front, exports of goods and services contracted 4.8% in Q4 (Q3: +3.8% s.a. qoq), marking the worst reading since Q3 2021. Similarly, imports of goods and services deteriorated, contracting 0.8% in Q4 (Q3: +0.1% s.a. qoq). Consequently, the external sector detracted 1.1 percentage points from overall growth in Q4, a sharp contrast to the prior quarter’s 0.9 percentage point contribution.
On an annual basis, economic growth waned markedly to 0.9% in Q4, compared to the previous quarter’s 4.2% expansion; markets had penciled in a 2.2% increase. The outturn brought overall growth for 2022 to 2.0%, more than halving from 2021’s post-pandemic rebound of 4.9%.