Despite facing unprecedented power outages, South Africa observes a modest GDP growth in Q1 2023.
South Africa’s Economic Performance: An Overview
South Africa has narrowly sidestepped a technical recession, registering a modest 0.4% GDP growth in Q1 2023, despite the country’s persistent power crisis. This turnaround – on par with market predictions – follows a concerning 1.3% decline in Q4 2022 due to relentless load shedding and sector-specific challenges.
Resilient Sectors Drive GDP Growth
Several sectors rallied against the power woes to display increased productivity in Q1, driving the overall growth. Here’s how they performed:
- Manufacturing Industry: Experienced a 1.5% growth, contributing 0.2% to the GDP growth. The food and beverages division, along with the petroleum, chemical products, rubber, and plastic products division, made significant contributions.
- Finance, Real Estate, and Business Services: Witnessed a 0.6% rise, contributing 0.2% to the GDP growth. Increased economic activities were noted in financial intermediation, insurance and pension funding, real estate, and business services.
- Personal Services Industry: Grew by 0.8%, contributing 0.1% to the GDP growth, predominantly driven by community services.
- Transport, Storage, and Communication Industry: Noted a 1.1% increase, contributing 0.1% to the GDP growth, thanks to heightened activities in land transport, air transport, transport support services, and communication services.
- Trade, Catering, and Accommodation Industry: Registered a 0.7% growth, contributing 0.1% to the GDP growth, with wholesale trade, retail trade, and catering and accommodation driving economic activities.
Potential Economic Challenges Ahead
Despite the economy’s positive trajectory, experts caution that South Africa’s troubles are far from over. The persistent load shedding, especially during winter months (Q2 and Q3), will continue to exert considerable pressure on growth, with flat annual growth anticipated.
The South African Reserve Bank forecasts that load shedding will shave two percentage points off the GDP growth in 2023, with the overall growth expected to oscillate between a recession and 0.3%.
Expenditure and Consumer Spending
Interestingly, expenditure on real GDP matched the GDP growth at 0.4% in Q1 2023, indicating heightened consumer spending.
Household Final Consumption Expenditure (HFCE) increased by 0.4%, contributing 0.3% to total growth, with significant spending seen in restaurants and hotels, health, food and non-alcoholic beverages, transport, and clothing and footwear sectors.
Final consumption expenditure by general government saw a 1.2% rise in Q1, primarily driven by increases in goods, services, and employee compensation.
Total gross fixed capital formation witnessed a 1.4% hike in Q1, boosted by investments in other assets, machinery and other equipment, non-residential buildings, and residential buildings.
In Q1 2023, South Africa experienced a notable inventory build-up of R35 billion (seasonally adjusted and annualised value), predominantly in the mining and quarrying, trade, catering and accommodation, and personal services industries.
However, net exports negatively impacted the growth in expenditure on GDP in Q1. While exports of goods and services increased by 4.1%, imports surged by 4.4%, largely due to increased trade in machinery, equipment, chemical products, vehicles, and prepared foodstuffs.