Stats SA said that the manufacturing and finance industries were the major drivers of growth on the supply side of the economy.
STATISTICS South Africa (Stats SA) announced on Tuesday that the country’s economy had grown by 0.4% in the first quarter (Q1) of 2023.
After contracting by a revised 1.1% in the fourth quarter of 2022, real gross domestic product (GDP) edged higher in the first quarter of 2023 (January‒March), expanding by an estimated 0.4%.
This means that South Africa has managed to stave off a technical recession.
Stats SA said that the manufacturing and finance industries were the major drivers of growth on the supply side of the economy.
“The demand side was lifted by exports, with smaller positive contributions for household, government, and investment spending,” Stats SA said.
Eight of the ten industries recorded growth in the first three months of the year, with manufacturing and finance, real estate and business services being the largest positive contributors.
Manufacturing output increased by 1.5%, adding 0.2 of a percentage point to GDP growth, Stats SA said.
The production of food and beverages was the main catalyst behind the industry’s positive showing.
Finance, real estate and business services crept up by 0.6%, mainly driven by financial intermediation, insurance & pension funding, real estate and business services.
Personal services increased by 0.8%, driven by increased activity in community services, data revealed.
A rise in rail freight and rail passenger transport helped the transport, storage and communication industry expand by 1.1%.
Air transport, transport support services and communications also witnessed stronger economic activity, contributing to the industry’s positive reading.
After a disappointing end to 2022, mining activity turned positive in the first quarter.
The rise in production was led by platinum group metals and gold.
The trade industry also registered upward growth, with positive results from wholesale trade, retail trade and catering and accommodation.
Motor trade wasn’t as lucky, however, recording a decrease in economic activity.
Electricity, gas and water and agriculture contracted in the first quarter. Electricity, gas and water (utilities) registered their fourth consecutive quarter of decline, dampened by weaker electricity production and lower water consumption.
The decline in utilities in the first quarter was an improvement from the decrease recorded in the previous quarter.
Agriculture slumped by 12.3%, weighed down by a decline in the production of field crops and animal products. Agriculture was the largest negative contributor in the first quarter, subtracting 0.4 of a percentage point from GDP growth.
Exports the main positive contributor to expenditure on GDP
Stats SA also measures the expenditure side of GDP, providing an indication of total demand in the economy.
This includes measures of government consumption, household consumption, investment (gross fixed capital formation and changes in inventories), and net exports.
South African exports were buoyant in the first quarter, expanding by 4.1%. Export growth was mainly driven by increased trade in base metals, food (vegetable products, prepared foodstuffs and beverages) and machinery and electrical equipment.
Mirroring the rise in construction on the supply side of the economy, gross fixed capital formation increased on the back of government investment.
“While the private sector and public corporations made smaller positive contributions, their impact was not on the same scale as government. Households increased spending on restaurants & hotels by 6.9%. This budget item was the largest positive contributor to the 0.4% rise in overall household consumption expenditure,” Stats SA said.
The data also showed that imports were also up in the first quarter, mainly driven by increased trade in machinery and equipment, chemical products, vehicles and transport equipment, and prepared foodstuffs & beverages.
GDP: A time series
Updated for the first quarter, the graph below provides a quick overview of how the economy has performed since 2015.
After the sharp downturn in the second quarter of 2020, real GDP (constant 2015 prices) took two years to return to pre-pandemic levels.
In the third quarter of 2022, real GDP reached an all-time high of R1 161 billion.
Despite the 0.4% rise in the first quarter of 2023, GDP remains below this peak.
Earlier this week, South Africa’s leading economists forecasted that GDP in Q1 2023 would reflect the fragile economic environment characterised by intensified power cuts and the rising cost of living.
Bloomberg consensus expectations are for GDP to have expanded by just over 0% in the first quarter, generally underpinned by the unexpected expansion in the electricity-intensive sectors, even as load shedding intensified in the first quarter of 2023 relative to the fourth quarter of 2022.
FNB senior economist Mamello Matikinca-Ngwenya, on Friday, said the economy could have experienced a “mild recession” during the first three months of this year.
Matikinca-Ngwenya said the volatile agricultural sector and unknown variations in some private services sectors remained a risk to the first quarter GDP outcome.
“Against this background and considering upcoming GDP revisions, we maintain our view of a mild recession in the first quarter,” she said.
“Nevertheless, this view has an upside risk, especially as electricity-intensive sectors defied load-shedding intensity in the reference quarter.”
The ongoing energy crisis has been a thorn in South Africa’s growth expectations as electricity shortages remained a binding constraint to economic activity.
Despite substantial fiscal support and the appointment of an electricity minister solely devoted to addressing the problem, Eskom has still not managed to improve the operating efficiency of its power plants, with the electricity availability factor hovering at a desperately low 55.9% towards the end of May.
Investec economist Lara Hodes said they forecast marginal growth of 0.4% in the first quarter.
Hodes said heightened load shedding had weighed heavily on the economy, impeding production and trade, while business confidence dipped further in the first quarter of 2023.
“Manufacturing production is projected to have risen by around 2.5% y/y at the start of the second quarter, on base effects, following the destructive floods in KwaZulu Natal in April last year,” Hodes said.
– BUSINESS REPORT
