South Africa’s economy contracted by 0.7% in the second quarter of this year after growing by a revised 1.7% in the first quarter in line with expectations.
Statistics SA said on Tuesday the size of the economy in the second quarter was much smaller than the same period pre-pandemic. Several sectors contracted after severe load shedding and two destructive floods in KwaZulu-Natal, among other things, weighed on growth.
Azar Jammine, director at Econometrix, said there were many factors that worked against growth in the second quarter.
Sectors that recorded declines were:
- Manufacturing -5.9%;
- Mining and quarrying -3.5%;
- Agriculture -7.7%;
- Construction -2.4%;
- Electricity, gas and water -1.2%;
- Trade, catering and accommodation -1.5%; and
- General government services -1.4%
While household consumption helped prop up growth after contributing 0.4 percentage points to growth in the second quarter, albeit lower when compared to the first quarter, reflecting the pressure consumers found themselves under in the three months to June.
Consumption slowed along with consumer confidence in the same period which reached lowest levels in 25 years and already signalled that growth in the second quarter would be significantly impacted.
Eating into consumers’ spending capacity is rising inflation, increased interest rates coupled with high levels of unemployment. Headline inflation reached a 13-year high in July rising to 7.8% year-on-year from June’s 7.4% on the back of increasing food and fuel prices.
This is because of supply side disruptions following Russia’s invasion of Ukraine that’s helped drive global inflation and jitters regarding global growth this year.
Jammine said the third quarter should see better domestic growth:
He said the Reserve Bank was expected to further increase the interest rates again when the monetary policy committee meets in two weeks’ time.
Other positive contributors to growth were gross fixed investment which contributed 0.1 percentage points. Transport, storage and communication and the finance, real estate and business services sectors both grew by 2.4% while net exports made a negative contribution to growth.