By: Reza Hendrickse, Portfolio Manager at PPS Investments
The South African economy rebounded further in the final quarter of last year, with Gross Domestic Product (GDP) expanding 6.3% quarter-on-quarter (seasonally adjusted annualised). Third quarter growth was also revised higher, from 66.1% to 67.3% quarter-on-quarter (seasonally adjusted annualised), signalling a stronger post-COVID bounce than initially estimated. For the full year, the SA economy contracted 7.0%, severely impacted by the pandemic lockdowns, during which economic activity ground to a halt. Although last year was the worst in decades, growth has in fact surprised positively, with initial forecasts having predicted an even deeper recession.
Of the three main economic sectors, the Secondary and Tertiary sectors (which relate to manufacturing and the services industries) showed the strongest growth. Drilling down deeper, eight out of the ten industries measured delivered positive growth, with Manufacturing and Trade together contributing around half of this quarter’s growth in economic output. Manufacturing was driven largely by food and beverages, motor vehicles, and metal and steel production, all of which benefitted from continued normalisation in production and demand patterns. Similarly, Trade was boosted by sectors exposed to retail and motor vehicle trade as well as catering and accommodation, which were all amongst the sectors hardest hit by the COVID-19 restrictions. Along with Manufacturing and Trade, the construction industry also rebounded particularly strongly, with all three of these posting double digit growth over the quarter.
Looking ahead, we expect the SA economy to continue on the path of gradual internal repair, while also benefitting from the tailwind of accelerating global growth this year. Although longer term we still consider the economy to be a structurally low growth one, there is some potential for a positive near-term surprise, given how low expectations currently are. Confidence should continue to rebound, particularly as the vaccine rolls out, while the strong performance of the mining sector should trickle through to other parts of the economy, as related sectors benefit. It will take some time for the local economy to get back to pre-COVID-19 levels, and load shedding will probably continue to hamper growth in the near term, but any growth ahead of expectations will be well-received, and will also make the job of National Treasury easier, as they work to maintain debt sustainability.
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