GDP slipped 0.7% in 2Q22. This as flooding, frequent load-shedding, high input (and transportation) costs and global trade disruptions affected economic activity. 1Q22 growth was revised lower to 1.7% (previously 1.9% q/q). GDP was up by 0.2% y/y, reflecting a material moderation from the downwardly revised 2.7% y/y (previously 3.0% y/y) in 1Q22.
Economic contraction
The GDP growth outturn for 2Q22 was slightly better than our forecast of -0.9% q/. It also aligned with the latest Bloomberg consensus. Notably, the economic contraction pushed GDP back below the pre-pandemic 4Q19 level. This corroborates our view of a fragile recovery as most economic sectors had not wholly recovered.
READ: SA GDP falls by 3.2%, biggest drop in 10 years
Nominal GDP expanded by 2.1% q/q (5.1% y/y), while compensation of employees (not seasonally adjusted) expanded by 5.1% y/y. This reflects a moderation from the 6.2% y/y growth in 1Q22.
Outlook: subdued recovery in 2H22
This data print does not alter our current-year growth forecast of 1.8%. We expect some of the headwinds that affected economic activity in 2Q22 to have been sustained into 2H22.
Interest rates increasing
Rising interest rates and higher living costs are likely to have a dampening impact on domestic spending resilience. However, employment gains and continued moderate growth in the compensation of employees could underpin economic activity in 2H22.
READ MORE: Steep slump in GDP as COVID-19 takes its toll on the economy
As GDP slipped 0.7% in 2Q22, we expect growth to average 1.8% over the medium term. This will be supported by energy reform-related infrastructure investment. Also by investment spending in other network industries such as roads and rail as well as ports and water.
A major risk
The slowing growth from South Africa’s major trading partners poses a risk to our forecast. However, domestic economic growth could remain supported if reforms to address the energy crisis and other network industries’ infrastructure inefficiencies are executed timeously.
Sectorial breakdown:
Production and trade fell, but some services increased
Measured from the supply side, the decline in GDP was broad-based, with 7 out of 10 sectors recording a quarterly contraction.
Article: Philisiwe Kobeli from First National Bank
