South Africa: Growth moderates in Q1, but still overshoots market expectations
GDP growth slowed markedly to 4.6% in seasonally-adjusted annualized rate terms (SAAR) in the first quarter, from 5.8% in the fourth quarter of last year. That said, the reading still notably beat market analysts’ expectations of a 2.5% rise. On an annual basis, GDP dropped 3.2% in Q1, softening from the previous period’s 4.2% decline.
On the domestic side, household consumption growth moderated to 4.7% in SAAR terms in the first quarter, from 7.5% in the fourth quarter of 2020. Moreover, government spending growth ebbed to 1.0% in Q1 (Q4 2020: +1.1% SAAR), while fixed investment swung back to contraction in the quarter, declining 2.6% (Q4 2020: +12.1% SAAR).
On the external front, exports of goods and services contracted 0.9% in Q1, likely reflecting a renewed surge in Covid-19 cases and the reimposition of restrictions globally at the beginning of the quarter (Q4 2020: +26.6% SAAR). In addition, growth in imports of goods and services moderated to 26.5% in Q1 (Q4 2020: +52.4% SAAR).
Commenting on potential risks to the economic recovery, Pieter du Preez, senior economist at Oxford Economics, noted:
“A third wave, depending on the subsequent restrictions put in place, will definitely have an impact on economic activity in Q2. […] The vaccination process was very slow out of the starting blocks. Local authorities have shown more intent recently to speed up the process, but unfortunately this will not stop the third wave. The poor vaccination drive will result in consumer demand remaining sluggish for the most part of this year. In general, a slow vaccination drive and electricity outages will weigh on activity this year. The latest signs that the government will struggle to commit to freezing the public sector wage bill is also negative for the economic outlook.”
Meanwhile, analyzing the outlook over the longer term, analysts at the EIU added:
“The economy will benefit in 2022 from a relaxation of power supply constraints from mid-year (after the planned commissioning of new generating capacity) and from stronger private investment in response to favourable policy initiatives, such as moves to facilitate public-private partnerships. Hurdles to growth in 2022 will be a global slowdown (after a 2021 rebound), persistently high unemployment and still-fragile tourism. We expect growth to strengthen to 2.8% a year on average in 2023–25, underpinned by long-delayed reforms (such as parastatal restructuring) and the spread of digital technology, but the global backdrop will remain subdued in terms of economic growth and trade flows.”