EDITORIAL: SA’s economic pick-up is no cause for complacency

It is shaping up to be a difficult year for the global economy, with the risk that advanced economies could head into recession or even much-feared stagflation. So it is encouraging that SA’s economy at least had a good start to the year, proving to be much more resilient than anyone expected in the first quarter. That is good news, and it attests to the strength of the private sector, despite deterioration in the public sector.

But it is no cause for complacency. Domestic constraints are likely to combine with global headwinds to make growth much harder to sustain in the coming quarters. The latest, surprisingly strong quarterly growth numbers should serve as a spur for SA to speed up the reforms it needs to implement if it wants to ride out the global slowdown — and put itself on a higher growth path.

The 1.9% quarterly growth rate reported by Statistics SA came in well ahead of economists’ 1.2% consensus forecast. And the 3% annual growth rate — comparing this year’s first quarter with last year’s — prompted some economists to start revising up their full-year forecasts, even though it is still early in the year.

Encouragingly, though, the data showed robust growth in the manufacturing sector, which has long been an underperformer and has struggled to regain its momentum post-Covid-19. Manufacturing made the largest contribution to growth during the quarter, at 4.9%,  but the trade sector, which includes accommodation and hospitality, came in second at 3.1%. That suggests that the reopening of the economy is well under way at last, with tourism and entertainment starting to recover. Household spending on restaurants, for example, grew particularly strongly during the quarter.

Stats SA’s breakdowns show just how important the trade sector is for jobs. It is one of three sectors whose share of employment in the economy, at almost one fifth, outweighs its share of GDP. The others are construction, which continues to be under siege, and agriculture, which has been the economy’s strongest growth sector, slowing in the first quarter only because it grew so fast in 2021. These are sectors policymakers should be making a priority if they seek jobs-rich growth.

Investment has to be a priority too if SA wants to lift its growth rate above the 1% range in which it languished in the pre-Covid-19 years. Happily, the recovery in investment has gained pace, with investment spending growing at 3.6% in the first quarter. But much of this is still in replacing and modernising ageing plant and machinery rather than in the new infrastructure and construction projects SA so badly needs. And there is still a long way to go to get to the levels of investment that would sustain the growth rates we need to tackle the unemployment crisis.

As it is, growth could slow significantly in the second quarter because of floods and load-shedding, not to mention the domestic transport and crime issues constraining exports and deterring investment. And that’s before we even start on the global factors driving up inflation and weighing on growth.

There seems to be no end for now to the war in Ukraine, which continues to keep global fuel and food prices high. As the US and Europe grapple with inflation and raise interest rates, tightening global financial conditions will drive up rates in emerging markets such as our own and put capital flows at risk. And while high global commodity prices have done much to buoy SA’s economy and its public purse, they cannot be relied on to stay high.

The bottom line then is that economic growth will be a challenge for the rest of 2022. But SA is not hostage entirely to global forces. There is much it can do domestically to improve its growth prospects. The IMF’s latest press release urges that SA “needs to urgently remove obstacles to private investment and encourage competition to reignite economic growth in the medium term” — and provides a cogent list of what we need to do to achieve that. Now is the time to press ahead.