Carmen Nel, Economist and Macro Strategist, Matrix Fund Managers

The fourth quarter 2021 real GDP growth, at 1.2% (q-on-q, seasonally adjusted) and 4.9% for the year, was in line with consensus expectations and so should have limited implications for the market. Rather, the Russia/Ukraine crisis remains the dominant factor for risk assets at the moment.

The underlying data showed dispersion rather than a broad-based rebound off the weak third quarter 2021 base. 

The good

Agriculture posted a strong performance, as expected, while the trade and manufacturing rebound following the July unrest made notable contributions to the overall expansion. 

The reopening of the economy and easing of lockdown restrictions were evident in a solid recovery in household consumption expenditure, which was biased towards discretionary spend such as restaurants and hotels, household furnishings, and clothing and footwear. Another positive was the expansion in fixed investment, led by machinery and equipment. The rebound in imports, while detracting from overall growth, points to ongoing normalisation in domestic demand and should be viewed as a positive.

The bad

A negative surprise was the decline in financial, real estate, and business services, which is usually a component with low volatility.

And the ugly

Mining was particularly weak, but the outcome was not a surprise in light of the high-frequency monthly data giving a preview. Construction continues to be hampered by weak infrastructure investment and a subdued residential housing market. 

But the recovery remains on track

It is important to note that this data is almost three months old and has less bearing on the outlook for the balance of 2022 than do global developments. Growth should be underpinned by the robust terms of trade, but the consumer faces a tougher environment due to rising fuel costs, upside risk to food prices, as well as from tightening monetary policy. 

We do not think this release will have a meaningful impact on the South African Reserve Bank’s Monetary Policy Meeting in two weeks’ time, as the Bank is likely to focus more on the inflation outlook and attendant upside risk stemming from the Russia/Ukraine crisis.

And could normalise sooner than expected

The economy is set to reach pre-pandemic levels (first quarter 2020) over the course of the second quarter this year and is likely to be back at the pre-pandemic trend by the December quarter. Both these time estimates are sooner than was originally estimated at the height of the Covid pandemic and strictest lockdowns.

The expectation is that the growth levers in 2022 will be the ongoing consumer recovery, upside from foreign tourism, and the government starting the infrastructure roll-out. Additional impetus could come from sustained high commodity prices and mining capex. That said, the risk is biased to the downside from current geopolitics. The Russia/Ukraine crisis remains fluid and highly uncertain and it is not possible to determine the impact that it will ultimately have on both global and local economies.

Investors should remain diversified and cautious

Local fixed income is offering significant value, but volatility is expected to remain elevated. South Africa equities have rand-hedge properties and have a positive beta to high commodity prices. A diversified portfolio but with a cautious bias is prudent in the current environment.