The latest Gross Domestic Product (GDP) data from Statistics South Africa revealed a growth rate of 0.6% in Q2 2023. This follows a 0.4% rise in Q1, resulting in two consecutive quarters of positive economic growth.
Six industries on the supply side of the economy expanded in Q2, with manufacturing and finance playing key roles, contributing significantly to this upward trend. On the demand side, the country benefited from a notable increase in investments in machinery and equipment, particularly in the renewable energy sector.
Old Mutual's Group Chief Economist, Johann Els, says that “while it falls short of our ideal growth rate, considering the challenges posed by electricity shortages and a confidence crisis in the country, this performance is commendable”.
How business is beating loadshedding
In the first six months of 2023, South Africa experienced loadshedding for 181 days, according to loadshedding tracker The Outlier. This also suggests that the country had only one full day of no loadshedding.
Despite the significant concerns surrounding power outages and their potential impact on the economy, the economic data for the first two quarters of 2023 underscores the resilience of the economy.
Els attributes much of this to substantial private sector investment in machinery and equipment, including batteries, solar panels and inverters, which have diversified the energy mix and reduced the nation's reliance on Eskom.
"More private electricity usage, as well as more efficient machinery and equipment, has resulted in the same GDP output now compared to the year 2000 while using 25% less Eskom electricity" he adds.
Els also highlights a noteworthy policy shift toward greater private sector involvement, which he aptly refers to as "privatisation by stealth”. While state-owned entities like Eskom and Transnet have faced their share of difficulties, this shift has enabled the private sector to assume responsibilities that were previously solely the government's domain.
This increased adherence to free-market principles bodes well for South Africa's future growth prospects.
An economy for the people, by the people
Els adds that while the economic growth is admittedly slow, another area of relative resilience is the ongoing employment recovery. This is supportive of consumers who are under pressure because of the weak growth environment.
According to the Quarterly Labour Force Survey (QLFS) released by Stats SA, the number of employed people increased by 258 000 to 16.2 million in Q1 2023 compared to Q4 2022. In Q2, the country added over 150 000 people to its workforce.
This means that the number of people with jobs rose to over 16.3 million, approaching the pre-COVID level of 16.4 million and marking the seventh consecutive quarterly rise in employment.
He adds that consumers are under pressure because of high inflation and high-interest rates, but because of this employment growth – and easing inflation as well as a peak in the interest rate cycle, they are not in a crisis or the deep consumer spending recession that one would have expected otherwise.
With a positive forecast for consumers, Els says interest rates could be lower by 125 basis points by the end of next year.
The first half of 2023 and beyond…
Acknowledging that South Africa's GDP growth lags behind some of its emerging market counterparts, Els remains cautiously optimistic about the future. Lower inflation, improved foreign policy and potential interest rate cuts hold the potential to boost confidence and gradually elevate the nation's underlying growth trend.
He emphasises that as the private sector assumes a pivotal role and gradually shifts towards greater privatisation, South Africa's medium-term growth outlook appears promising.
He says investors can be assured that the nation's ability to weather storms and adapt to changing circumstances stand as a testament to its enduring spirit and its potential for continued growth.
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