Consumption in South Africa

South Africa - Consumption

Growth slows markedly in Q4, but beats market expectations

Economic growth softened markedly in the final quarter of 2020, with GDP expanding 6.3% in seasonally-adjusted annualized terms (SAAR), which was down from Q3’s record bounce-back of 67.3%. That said, the result came in above market analysts’ expectations of a 5.0% expansion. On an annual basis, GDP fell 4.1% in Q4, easing from Q3’s 6.2% contraction. Taking the year as a whole, the economy contracted 7.0% in 2020 (2019: +0.2%) amid the fallout from the Covid-19 pandemic and its associated lockdown measures, marking the first decline since 2009.

The fourth quarter’s moderation largely came on the back of softer domestic activity. Household spending growth slowed to 7.5% SAAR in Q4 from a 75.3% expansion in Q3, while fixed investment growth waned to 12.1% in Q4 from 26.9% in the previous quarter. That said, government spending expanded 1.1% in Q4, picking up from Q3’s 0.8% rise.

On the external front, growth in exports of goods and services moderated notably to 26.6% in Q4 (Q3: +194.3% SAAR). Conversely, imports of goods and services bounced back, growing 52.4% in Q4 (Q3: -1.9% SAAR). As such, net exports contributed negatively growth in Q4, subtracting 7.2 percentage points from the overall reading and contrasting the previous quarter’s 60.2 percentage-point contribution.

Commenting on the outlook for the economy, Pieter du Preez, senior economist at Oxford Economics, reflected:

“The country had to endure some uncomfortable restrictions at the end of last year and most of Q1, after a second wave of Covid-19 infections, which included a more contagious variant on home soil, struck in early December. […] Subsequently, we have revised our forecast for the year as a whole downwards to a 2.0% expansion. With hard economic data for 2021 yet to come out, we maintain our view, which is based on an expectation of a soft start to the year, since hard data on manufacturing, mining, retail sales and credit extension to the private sector all indicated that the economic recovery started to flatten out in Q4.”

Meanwhile, Andrew Matheny, economist at Goldman Sachs, has more optimistic expectations:

“We maintain our forecast for a rebound in GDP of +4.5% in 2021 following a 7.0% decline in 2020, with risks to this forecast arguably tilted somewhat to the upside on account of a supportive global economic backdrop and terms of trade developments.”

FocusEconomics Consensus Forecast panelists project GDP to expand 3.5% in 2021, which is down 0.2 percentage points from last month’s forecast. For 2022, panelists see GDP growth at 2.6%.