Economy grows 0.4% in the first quarter

South Africa's economy has dodged going into a recession in the first quarter of 2023 after growing by a measly by 0.4% quarter-on-quarter from a revised contraction of 1.1%. On an annual basis, the economy was worse off after slowing to 0.2% year-on-year from 1.5% in the first quarter of 2022.

While GDP growth was positive in the three months to March, growing to R1.152 billion, it was below the post-pandemic bounce back between July and September last year when it peaked to R1.161 billion.

FNB economist Thanda Sithole said:

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The marginal upside surprise from the first quarter outcomes may push our 2023 growth expectation of 0.1% higher. However, this is clouded by the likelihood of more intense power outages in winter. Also, real wage growth remains limited, and the impact of the cumulative 475 basis points rise in interest rates is still filtering through. We will provide our new set of macroeconomic forecasts over the next few days.

FNB economist Thanda Sithole

This comes as the country experienced more load shedding in the first five months of 2023 than the whole of 2022. The Reserve Bank said that, until May 2023, approximately 13 000 gigawatt-hours of electricity had already been shed, which equates to 136 full days of load shedding, compared with 11 700gWh in the whole of last year.

With fewer than 21 days in the year when there wasn't any load shedding anywhere in the country, the central bank was worried about the impact of a national blackout on the country's financial sector.

SECTORAL PERFORMANCE

Eight of ten industries contributed positively to growth, with manufacturing growing by 1.5%; and the finance, personal services and transport sectors increased by 0.6%, 0.8% and 1.1%, respectively.

Agriculture declined by 12.3%, primarily due to decreased economic activities reported for field crops and animal products, according to StatsSA, which released that data on Tuesday. The electricity, water and gas industry were down 1%.

Meanwhile, the pressure on households was evident. Household consumption slowed to 0.4% in the first quarter when compared with the last three months of last year. Although showing a level of resilience, households have been under the increasing pressure of rising inflation and interest rates that have all but destroyed their disposable incomes.

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Generally, consumer headwinds remain persistent while income growth of 3.8% year-on-year in the first quarter was below inflation of 7%. This should push more households to reallocate a higher proportion of income towards essential items. While growth in consumption credit should partly reflect distressed borrowing as higher living costs drain consumer wallets, higher interest rates should eventually weigh on credit expansion as lending standards tighten.

FNB economist Thanda Sithole

Government final consumption expenditure increased by 1.2% from a negative 0.7% in the quarter before, while fixed investment was up 1.4%, underpinned by other assets that include research and development, computer software, mineral exploration and cultivated biological resources, and investment in non-residential buildings.

EXPORTS

Net exports grew by 4.1% in the first quarter, with most of the country's metals going to China and the US, the second biggest destination for our exports, followed by Germany, India and Japan, according to SA Revenue Service records.

This picture might change somewhat as China transitions from a commodity-driven economy to one that is led by consumer consumption.

Citadel director Bianca Botes says this, coupled with domestic idiosyncrasies, is likely to negatively affect South Africa's mining production and exports volumes.

"It will change the composition of what we can export to China, but it would also open new doors in terms of what we would be able to provide to that consumer base in China. While we might see a decrease in hot commodities in terms of gold, platinum and diamonds, iron ore, coal and natural gas, we could see an increase in tourism coming into South Africa, so one sector will probably start replacing the commodities sector. It won't be a full stop; it will be a gradual change," she said.