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GDP forges ahead in 2nd quarter

The resilience of the South African economy was proven yet again by the positive news on the country’s economic growth rate for the 2nd quarter of 2023.

Most economists were hopeful of a modest positive growth rate and they were not disappointed. Unfortunately, the choice of methodology makes it rather difficult to pinpoint the extent and nature of economic expansion that occurred between April and June, as vividly illustrated by the table.

Arguably the most accurate gauge of the current economic growth momentum can be found in the GDP figures at constant 2015 prices, as published by Statistics SA. This method yields quarter-on-quarter and year-on-year real growth rates of 3.5% and 1.6%, respectively.

Seasonally adjusted and annualised calculations of GDP data are fraught with misinterpretation, as they do not accommodate factors such as structural changes to output levels; abrupt changes to the inflationary cycle; growth drivers inherent in certain import categories and abnormal weather patterns.

The 4.7% quarter-on-quarter real growth rate in the table is probably even more accurate, as this figure is based on the actual GDP data for June 2023 (at current prices), adjusted to real terms by the difference between the inflation rates for the 1st and 2nd quarters of 2023.

Unfortunately, when utilising this methodology for year-on-year growth, it yields a marginally negative rate – probably par for the course against the background of the price pressures over the past four quarters and the highest interest rates in 15 years.

The bottom line is that, despite the very high cost of capital (and credit), severe rationing of electricity and on-going logistical problems associated with the poor condition of the country’s roads, railways and harbours, South Africa’s economy has managed to forge ahead, albeit slowly.

Growth drivers

Two key growth drivers that have come to the fore during the 2nd quarter of the year are record harvests for key agricultural products (which also feed into food processing industries), growth in exports of manufactured goods and a new all-time record for the imports of machinery and equipment. Much of the latter is associated with the exponential growth in renewable energy installations, with rooftop solar photovoltaic (PV) capacity in South Africa having quadrupled in the past year from just above 1,000 MW to 4,400 MW (excluding government’s renewable energy programme for independent power producers).

In its latest economic outlook, assurance, advisory and tax services firm PwC South Africa expects investment in solar power to reduce load-shedding and increase employment growth in 2024. Hopefully, these predictions will prove to be correct.

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