SA’s economy shrinks in Q2, now smaller than pre-pandemic levels

accreditation
0:00
play article
Subscribers can listen to this article
Eating into consumers’ spending capacity is rising inflation, increased interest rates coupled with high levels of unemployment. Photo:  RollingCamera/Getty Images
Eating into consumers’ spending capacity is rising inflation, increased interest rates coupled with high levels of unemployment. Photo: RollingCamera/Getty Images

BUSINESS


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.

He said: 

Other negative factors were a slowdown in growth in consumption by government in line with the policy of fiscal austerity with regards to public sector remuneration and the surge in import costs because of higher oil prices.

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.

READ: Analysis: South Africa, emerging markets will bear brunt of global inflation fight

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:

Largely because the impact of the floods won’t have been repeated and because the intensity of load shedding has started dissipating somewhat. We are not looking for any major economic growth in the third quarter and undoubtedly if you look at the impact of rising interest rates and higher inflation, those would have remained negative in the third quarter, so it’s going to be a marginal improvement rather than a major one.

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.


We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For 14 free days, you can have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today. Thereafter you will be billed R75 per month. You can cancel anytime and if you cancel within 14 days you won't be billed. 
Subscribe to News24
Latest issue
Latest issue
All the news from City Press in PDF form.
Read now
Voting Booth
Do you believe that the various planned marches against load shedding will prompt government to bring solutions and resolve the power crisis?
Please select an option Oops! Something went wrong, please try again later.
Results
Yes
22% - 98 votes
No
78% - 340 votes
Vote