Consumption in South Africa

South Africa - Consumption

GDP growth records quickest upturn since Q4 2020 in Q1

In the first quarter of the year, the South African economy returned to its pre-pandemic level. GDP growth improved to 1.9% on a seasonally-adjusted quarter-on-quarter basis in the first quarter, from 1.4% in the fourth quarter of last year. Q1's result marked the best growth reading since Q4 2020, and was chiefly driven by household spending and exports.

Private consumption increased 1.4% in the first quarter, which was below the fourth quarter's 3.0% expansion. Public consumption sped up to 1.0% in Q1 (Q4 2021: +0.2% s.a. qoq). Fixed investment growth sped up to 3.6% in Q1, from the 1.6% growth logged in the prior quarter.

On the external front, exports of goods and services growth softened to 3.9% in Q1 (Q4 2021: +8.3% s.a. qoq). In addition, imports of goods and services growth moderated to 4.9% in Q1 (Q4 2021: +8.4% s.a. qoq). All said, the external sector deducted 0.2 percentage points from the headline reading.

On an annual basis, economic growth gathered momentum, rising to 3.0% in Q1, compared to the previous period's 1.7% expansion. Q1's reading marked the fastest growth since Q2 2021.

Looking ahead, the economy is likely to have taken a hit in the second quarter amid from the destructive April floods in KwaZulu-Natal. The floods are expected to have weighed on private-sector activity as well as household spending in the period as a whole; some damaged infrastructure will not be fully operational again until the end of the third quarter. Furthermore, a lingering risk of power shortages creates additional hurdles.

Analysts at the EIU added:

“After [a] solid to start to 2022 we expect real GDP to contract on a quarter-on-quarter seasonally adjusted basis in April–June, and to remain fragile in July–September, given a higher risk of load-shedding in winter and lingering disruption from April's floods. South Africa will move closer to its potential growth rate in 2023–2026, provided that structural reforms unlock private investment and jobs.”

FocusEconomics Consensus Forecast panelists project GDP to expand 2.0% in 2022, which is unchanged from last month’s forecast. For 2023, panelists see GDP growth at Error! Not a valid link.%.