Weak Q3 GDP in SA likely to extend to the fourth quarter

Statistics South Africa has reported that gross domestic product (GDP) decreased by 1,5% quarter on quarter in Q3 2021. The figure was worse than a Bloomberg consensus of estimates had predicted of around -1% growth for the quarter.

Unadjusted real GDP at market prices for the first nine months of 2021 increased by 5,8% compared with the first nine months of 2020.

Manufacturing, trade and agriculture significant contributors to economic contraction in Q3 2021

The manufacturing industry decreased by 4,2% in Q3 2021 with eight out of ten divisions producing negative growth rates over the reported period. The largest contributions to the contraction in the manufacturing division were from the motor vehicles, parts, accessories and other transport equipment industries. Notable declines were also noted from the food and beverages, basic iron and steel, non-ferrous metal products, metal products and machinery divisions.

The trade, catering and accommodation industry decreased by 5,5% with weak economic activity reported for wholesale, retail and motor trade division as well as catering and accommodation services.

The agriculture, forestry and fishing industry decreased by a massive 13,6% mainly due to lower production of field crops and animal products.

The transport, storage and communication industry decreased by 2,2%, with soft economic activity reported for land transport and air transport.

Comments on Q3 2021 GDP

Civil unrest in Kwazulu-Natal and parts of Gauteng, has hurt wholesale and retail trade over the reporting quarter. Weak manufacturing and agriculture output provide further unease around what is a currently dismal state of employment within the country. Unfortunately, the third quarter data means that our domestic economy remains around 3% smaller than it was pre pandemic.

Q4 2021 growth outlook fragile

South Africa’s 4th quarter is unlikely to see a strong return to growth.

The current quarter has already seen a plethora of catalysts to hinder a much needed economic recovery. Amongst these catalysts are the reemergence of more aggressive load shedding and extended power outages / energy shortages, protected strike action and the onset of the Omicron variant of the pandemic.

Possible SARB revisions to follow?

The South African Reserve Bank (SARB) currently estimates that in 2021 the local economy will have grown by 5.3%. With a softer than expected third quarter and weak outlook for the fourth quarter, it is likely that the Reserve Bank will need to further downgrade its forecasts for growth in 2021.

While primarily mandated towards inflation (which has been on the rise), the SARB will need to still consider economic growth and employment. The bank, in lieu of its Quarterly Projection Models, has previously indicated that it is set to raise interest rates at least once a quarter through until 2024. Raising rates too quickly will however hamper economic growth and in turn employment. While certainly not guaranteed, we could see future lending rate hikes postponed as economic headwinds reemerge and persist.