SA’s GDP shedding another 1.5% bad news for all, dashes hope for recovery

South Africa’s gross domestic product (GDP), measured by production, has lost another 1.5% due to contraction in most sectors during the third quarter, while expenditure on GDP decreased by 1.6%.

Professor Jannie Rossouw from the Wits Business School says the decrease is very serious and it means that South Africa will not be able to erase the negative performance of 2020 this year. It also means that the economy will grow less than expected and that government will receive less tax revenue.

“The fact that manufacturing contracted so much is the most serious aspect of the new GDP statistics. Add to this the decline in tourism that will reflect in the statistics for the fourth quarter and it becomes very worrying.”

However, Rossouw says, the country is not yet over the edge of the fiscal cliff, but definitely in fiscal unsustainability, where there is just no money to spend. He also pointed out the fact that government’s expenditure on employee compensation had increased, while it has been said many times that government’s wage bill is too high.

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This is why GDP decreased

According to Statistics SA, the decrease in GDP is due to:

• A decrease of 5.5% in the trade, catering and accommodation industry, contributing -0.7 of a percentage point to GDP growth, as well as decreased economic activities in the wholesale, retail and motor trade and catering and accommodation services.
• A decrease of 4.2% in the manufacturing industry, contributing -0.5 of a percentage point to GDP growth.
• Eight of the 10 manufacturing divisions reported negative growth, with the motor vehicles, parts and accessories and other transport equipment division contributing most to the decrease.
• A noteworthy decrease in the food and beverages division, as well as basic iron and steel, non-ferrous metal products, metal products and machinery division.
• A decrease of 13.6% in the agriculture, forestry and fishing industry that contributed -0.4 of a percentage point, mainly due to decreased production of field crops and animal products.
• A decrease of 2.2% in the transport, storage and communication industry, contributing -0.2 of a percentage point.
• A decrease of economic activity in land and air transport.

Unadjusted real GDP at market prices for the first nine months of 2021 increased by 5.8% compared to the first nine months of 2020.

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GDP expenditure

Statistics SA also reported decreases in expenditure on GDP:

• A decrease of 1.6% in expenditure on real GDP in the third quarter of 2021.
• A decrease of 2.4% in household final consumption expenditure (HFCE), contributing -1.6 percentage points to total growth with the largest decreases reported for expenditure on durable and non-durable goods.

The main negative contributors to growth in HFCE were expenditures on:

• Transport: -4.1% and contributing -0.6 of a percentage point
• Furnishings: -9.9% and contributing -0.6 of a percentage point
• Recreation: -7.0% and contributing -0.5 of a percentage point
• Food: -1.8% and contributing -0.3 of a percentage point
• Restaurants: -6.1% and contributing -0.2 of a percentage point.

Expenditure on health, education and the “other” category contributed positively to growth in HFCE, while spending on life insurance was the main contributor to the increase in the ‘other’ category.

Government’s final consumption expenditure increased by 0.1% in the third quarter, with an increase in employee compensation reported.

Total gross fixed capital formation was flat between the second and third quarters and the asset types recording positive growth were other assets (8.8% and contributing 1.0 percentage point), machinery and equipment (1,8% and contributing 0.7 of a percentage point) and residential buildings (1.5% and contributing 0.2 of a percentage point).

Statistics SA also reported a R915 million drawdown of inventories in the third quarter of 2021 with large decreases in manufacturing and trades contributing to the inventory drawdowns.

Although net exports contributed positively to growth in expenditure on GDP in the third quarter, the export of goods and services decreased by 5.9%, largely influenced by decreased trade in vehicles and other transport equipment, chemical products, machinery and equipment, pearls, precious and semi-precious stones, precious metals and textiles and textile articles.

Imports also decreased by 2.8%, driven largely by decreases in mineral products, base metals and articles of base metals and prepared foodstuffs, beverages and tobacco.