ECONOMIC WEEK AHEAD: A strong end to the year is expected to lift growth towards 5%
SA’s growth rate picked up well in 2021, buoyed by robust recoveries in retail and manufacturing
Economists expect that a strong bounce-back in economic growth in the final quarter of 2021, after the sharp contraction caused by the July unrest, will push SA’s growth rate close to 5% for the year as a whole.
Fourth-quarter GDP data will be released by Stats SA on Tuesday but with only half of the data available in the form of advance releases, economists’ quarterly growth estimates vary widely.
Absa is forecasting a partial rebound of 1% quarter on quarter (seasonally adjusted) from the large 1.5% quarter-on-quarter contraction in the third quarter, while Investec is hoping for an outsize 2.5% quarter-on-quarter recovery.
Citi Bank economist Gina Schoeman is expecting growth to lift to 1.1% quarter on quarter, which should result in whole year growth for 2021 of 4.8%, in line with the National Treasury’s forecast.
Stanlib’s Kevin Lings is expecting fourth-quarter growth of about 1.5% quarter on quarter and 4.7% for the year as a whole.
“Retail sales had a very good November and December despite Covid,” he said. “Manufacturing also improved noticeably over that period, while mining weakened sharply and declined during the quarter.”
Retail sales grew by 5.3% quarter on quarter in the fourth quarter to achieve a robust 6.4% year-on-year growth rate for 2021 as a whole compared with the 7% year-on-year contraction experienced in 2020. However, retail sales remain below pre-Covid levels.
Manufacturing output rebounded from a 4.3% quarter-on-quarter contraction in the third quarter, when factories were hit hard by the July unrest in KwaZulu-Natal, to grow by 2.6% quarter on quarter in the final quarter and 6.4% year on year over 2021 as a whole. However, it too remains well below pre-Covid levels.
“SA growth needs to gain significant momentum in 2022 to improve labour market conditions,” said Lings. “Fortunately, the recent improvement in commodity prices should provide some support in the first half of the year, but it is critical to encourage a higher level of business and consumer confidence.”
The RMB/BER business confidence index (BCI) for the first quarter of 2022 will be released on Wednesday.
Investec expects the BCI to rise above 50 index points into expansionary territory from the subdued reading of 43 recorded in the final quarter of 2021.
“Lenient Covid-related lockdown measures and an easing of travel bans by key tourist markets likely lifted sentiment in a number of key sectors of the economy,” said Investec economist Lara Hodes.
“Additionally, the global outlook was looking more favourable, before the onset of the Ukrainian/Russian conflict, on an easing in supply-side bottlenecks and pickup in demand.”
Monthly mining and manufacturing production data for January 2022 will be released on Thursday.
The pickup in new sales orders and business activity revealed in January’s buoyant Absa manufacturing purchasing managers’ index (PMI), which rose to 57.1 index points from 54.1 in December 2021, bodes well for a recovery in manufacturing.
Hodes expects December’s seasonally sharp manufacturing decline to have eased, translating into an annual rise of about 3% year on year in January.
“However, while demand has risen following an easing of Covid-related lockdown restrictions, global supply chain constraints continue to weigh on delivery lead-times and the availability of inputs,” she says. “Moreover ... load-shedding remains a key risk to productivity.”
Hodes expects mining output to have contracted by -1% year on year in January, following December’s -1.1% year-on-year slump, mainly due to seasonal factors. The sector also continues to face electricity supply and logistical constraints.
The current account balance for the final quarter of 2021 will be revealed on Thursday. SA recorded an average current account surplus of 3.8% of GDP 2021, thanks to a powerful recovery in the country’s terms of trade, driven by the commodity boom.
BNP Paribas is forecasting a smaller current account surplus of 2.3% of GDP for the final quarter of 2021 (compared with 3.6% in the third quarter) mainly due to a steady moderation in the trade surplus on higher oil prices.
Assuming no big surprises in the balance of net dividends and interest flows, Absa forecasts that the current account surplus will ease to 2.1%.
Economists generally expect SA’s trade surplus to narrow and possibly even revert to a small deficit, if the prices of SA’s commodity exports wane in the second half of the year, as expected.