Increase in GDP good, but nothing to write home about

The increase in gross domestic product (GDP) is good, but not great, economists say, after Statistics SA released the latest figures today.

Statistics show that South Africa’s GDP increased by 1,2% in the second quarter of this year.

ALSO READ: SA economy grew by 1,2% in second quarter

Economist Mike Schüssler says while the number was good, it was not the best.

“One thing to keep in mind is that South Africa’s gross domestic product (GDP) is still 1,7% below its highest level of December 2018.

“In my mind, the bounce-back has been very strong, and with some tourism probably on its way back probably by year-end or early next year, our GDP will reach a new highest level when it adds 2,7% .”

He says while the bounce-back has been strong, it must be remembered that high commodity prices have added at least 2% to GDP on the mining side, and another 0,5% on the agricultural side.

“This partly explains where some of the bounce comes from, as this flows through the economy from these two primary sectors.

Increase in GDP: We are lucky

“However, this is very easy growth, and much of it was not achieved due to our hard work, but our good luck. Our production levels are not back to, say, 2016 levels.

“Agriculture had a great rainy season in most of the summer rainfall areas, and higher export prices.”

Schüssler says interest rates at their lowest level in 50 years also played a role.

“The world is expected to grow about 6% this year, while South Africa is expected to grow just over 4% or 4,5%. The good news is good, but in relative terms, South Africa is unlikely to beat the world growth average.”

He expects the country will be out of the woods if our little bit of luck holds.

Encouraging increase in GDP

Prof. Bonke Dumisa, an independent economist, says it is encouraging to see the 1,2% GDP growth.

“This is very impressive, albeit viewing all these figures against the Covid-19 pandemic Disaster Management Act Regulations and measures still stifling the real economic growth rates.”

He says we must also view these figures against the background that Statistics SA is now using a revised formula in calculating the GDP figures, with the benchmark year brought forward to 2015.

“We are excited that agriculture has improved significantly at 6,2%, but I wonder if this will be sustainable throughout, or seasonal.

“I am also impressed by the consistent improvement of the mining figures, because the increased demand for commodities has helped a lot in increasing foreign currency inflows into South Africa.”

Dumisa says it is however regrettable that that manufacturing and construction continue to disappoint with consistent negative growth, especially since these sectors could offer more job opportunities for unskilled or lower-skilled workers.

ALSO READ: SA economy contracted by 7% in 2020

Q3 will be different story

NKC African Economics says the higher-than-expected figure is encouraging, but the organisation expects a different story for the third quarter.

“Recent events have highlighted the fragilities once again and negated the strong start to the year, somewhat.”

The third wave of Covid-19 infections, as well as the riots and looting, have erased the positive momentum.

NKC’s current projection is at 3.8% for 2021.

Economy is now 11% bigger

Maarten Ackerman, chief economist at Citadel, also says it is important to remember that, due to the recent re-basement, this means the economy is now considered 11% bigger.

He says while annual growth is up by a massive 19.3% compared to this time last year, we must consider that this is measured off a low base at the bottom of the decline, and this figure is therefore likely the growth ‘peak’.

ALSO READ: Updated GDP estimates show economy is 11% larger

“It is encouraging to see that Q2 has experienced 1.2% growth since Q1, and that South Africa has now experienced four consecutive positive quarters since exiting the huge decline in Q2 of 2020.

“Although the growth was less than the expected 2%, the market has not reacted to this, with the rand and bond markets remaining stable.”

He says while household expenditure increased by 0.5%, this is slightly lower compared to the first quarter.

“When looking at household expenditure, it appears that most consumers who have a steady income are somewhat managing to make ends meet.

“A decline in government expenditure coupled with better revenue collection on the back of the economic recovery will support the fiscal outlook over the short term.”

Hope growth continues

Prof. Jannie Rossouw from the Wits Business School agrees that GDP growth was better than expected, and is impressed that exports grew so much.

“I hope it continues because it will help to create jobs.”

He does not think the third quarter will be much lower, despite the unrest, although he points out that there are some shops that burned down that will never reopen.