EDITORIAL: Growth figures offer brief respite from a diet of bad news

For a country punch drunk from too much bad news, it is a welcome relief that the economy outperformed expectations in the first quarter of the year — growing 1.9% quarter on quarter in real terms against a consensus expectation for just 1.2%.

This equates to year-on-year growth of 3% — an encouraging number. It will lift the base for measuring GDP in 2022 as a whole, causing many economists, who were expecting whole-year growth to come in around the 1.8% mark, to revise their estimates upwards to well above 2%.

It also means that after two years, the economy is back to the size it was before the pandemic, having experienced a V-shaped recovery that was stronger and faster than initial expectations.

On the production side of the economy, eight of 10 industries recorded positive growth, with manufacturing the star performer, growing 4.9% q/q against 2.5% in the previous quarter. The trade and finance sectors also made a solid contribution.

Another bright spot is that household consumption increased 1.4% q/q, with the hospitality sector making a particularly strong showing as spending on restaurants and hotels surged and the Omicron wave faded.

Also positive is that the pace of fixed investment accelerated a healthy 3.6% q/q, up from 1.6% in the fourth quarter of last year. This helps to explain the improvement in SA’s unemployment rate to 34.5% and the creation of 370,000 jobs in the first quarter.

Unfortunately, that’s where the good news ends. The beleaguered construction sector contracted again — for its fourth successive quarter. Mining also underperformed, with output shrinking 1.1% q/q as SA’s creaking logistics infrastructure and strikes retarded production.

Moreover, the data only covers January, February and March. So it fails to reflect the impact of the devastating floods in KwaZulu-Natal during April, or the full effects of the war in Ukraine, which has sent food and fuel prices soaring.

In the second quarter, SA firms have also had to deal with rising inflation, load-shedding and strikes. This means economic activity likely took a dive. Indeed, many of SA’s monthly data releases were notably softer in April.

Sentiment bounced back somewhat in May once the Durban port got back to business, domestic demand improved and exports normalised.

However, price pressures are building all along the value chain and the Reserve Bank has shown it will give no quarter in fighting inflation. In that respect, the upside surprise to first-quarter GDP likely seals the case for another 50 basis point rates hike at the Bank’s July meeting.

In short, the GDP data shows that while the recovery gathered steam in the first quarter, this has probably been rudely cut short by events since then. Even so, the first-quarter surprise will lift whole-year GDP growth and is an unexpected bonus in a country used to an unrelenting diet of bad news.