Floods and electricity shortages disrupt second – quarter growth
Herman van Papendorp, Head of Investment Research & Asset Allocation and Sanisha Packirisamy, Economist at Momentum Investments
Momentum Investments have released their research note titled Floods and electricity shortages disrupt second – quarter growth prepared by the Momentum Macro Research Team.
Below, is a summary of highlights from the team, as well as commentary from Sanisha Packirisamy, Economist at Momentum Investments and Herman van Papendorp, Head of Investment Research & Asset Allocation at Momentum Investments.
Growth beat expectations for the second quarter of the year. Real economic activity increased by 0.2% in year-on-year (y/y) terms, from a robust 2.7% (downwardly revised from 3%, due to adjustments in the agriculture and mining industries) in the first quarter of 2022.
The economy contracted by 0.7% in quarter-on-quarter (q/q), non-annualised seasonally adjusted (sa) terms, compared with the Reuters market consensus expectation of negative 0.8%.
Extensive flood damage in KwaZulu-Natal and a higher incidence of loadshedding were the primary cause of growth disruptions in the manufacturing, mining and agriculture sectors.
The latest gross domestic product (GDP) figures leave overall economic activity marginally below pre-pandemic levels. A poor performance across large sectors of the economy has resulted in six out of the 10 South African (SA) industries operating below average levels calibrated for 2019.
SA’s cost-of-living crisis has worsened over the past decade. Real growth in the economy averaged a mere 1.1% over the past 10 years compared to the average rate of growth in the SA population of 1.5% for the same period.
The largest contributions to growth in the second quarter, based on the production method, came from transport and financial services. Meanwhile, activity in the manufacturing, mining, agriculture and trade sectors detracted the most from the second quarter growth number.
Based on the expenditure method, the largest contributors to growth came from household consumption, inventory and exports, while imports detracted the most.
In our view, slowing global demand and unwinding of accommodative monetary policy, fiscal consolidation, structurally high unemployment and energy supply shortages locally, continue to raise notable downside risks to the local growth outlook.
We expect growth to average 2% in 2022, before slowing to 1.7% next year. This year’s growth forecast is in line with the August 2022 Reuters Econometer poll, but our expectations are firmer than their 1.5% prediction for 2023. Our projection for 2022 is in line with that of the SA Reserve Bank’s (SARB), although they paint an even gloomier picture for growth of 1.3% for 2023.
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