South Africa dodges technical recession – despite record load shedding

South Africa’s gross domestic product (GDP) increased by 0.4% in the first quarter of 2023, leading the country to narrowly dodge a technical recession.

The number was in-line with market expectations and came after the country posted a shocking decline of 1.3% in the fourth quarter of 2022 on the back of persistent load shedding and other issues in critical sectors.

The overall growth was driven by several sectors, which showed increased productivity over the quarter despite persistent load shedding and an ongoing power crisis.

The manufacturing industry increased by 1.5% in the first quarter, contributing 0.2 of a percentage point to GDP growth.

Four of the ten manufacturing divisions reported positive growth rates in the first quarter.

The food and beverages division made the largest contribution to the increase in the first quarter. The petroleum, chemical products, rubber and plastic products division also made a significant contribution to the growth in this industry.

The finance, real estate and business services industry increased by 0.6% in the first quarter, contributing 0.2 of a percentage point to GDP growth. Increased economic activities were reported for financial intermediation, insurance and pension funding, real estate and business services.

The personal services industry increased by 0.8% in the first quarter, contributing 0.1 of a percentage point to GDP growth. Increased economic activity was reported for community services.

The transport, storage and communication industry increased by 1.1%, contributing 0.1 of a percentage point to GDP growth. Increased economic activities were reported for land transport, air transport, transport support services and communication services.

The trade, catering and accommodation industry increased by 0.7% in the first quarter, contributing 0.1 of a percentage point to GDP growth. Increased economic activities were reported for wholesale trade, retail trade and catering and accommodation.

However, despite the positive turn for the economy, analysts and experts have warned that the country’s woes are far from over.

With load shedding remaining an ever-present blight on the economy, growth for the rest of the year – especially during the quarters with winter months (Q2 and Q3) – will remain under severe pressure, and annual growth is expected to be flat.

The South African Reserve Bank has warned that load shedding will wipe two percentage points from GDP growth in 2023, with most forecasts between recession and 0.3% growth.

Expenditure on GDP

Expenditure on real GDP also increased by 0.4% in the first quarter of 2023, pointing to higher consumer spending over the three-month period.

Household final consumption expenditure (HFCE) increased by 0.4% in the first quarter, contributing 0.3 of a percentage point to total growth. Increases were reported for semi-durable and non-durable goods.

The main positive contributors to the increase in HFCE were expenditures on restaurants and hotels (6.9% and contributing 0.3 of a percentage point), health (2.6% and contributing 0.2 of a percentage point), food and non-alcoholic beverages (1.0% and contributing 0.1 of a percentage point), transport (0.9% and contributing 0.1 of a percentage point) and clothing and footwear (2.3% and contributing 0.1 of a percentage point).

Expenditure on the ‘other’ category contributed negatively to growth in HFCE in the first quarter.

Final consumption expenditure by general government increased by 1.2% in the first quarter, mainly driven by increases in goods and services and compensation of employees.

Total gross fixed capital formation increased by 1.4% in the first quarter. The main positive contributors to the increase were other assets (10.3% and contributing 1.0 percentage point), machinery and other equipment (1.3% and contributing 0.5 of a percentage point), non-residential buildings (4.6% and contributing 0.2 of a percentage point) and residential buildings (1.5% and contributing 0.2 of a percentage point).

There was a R35 billion build-up of inventories in the first quarter of 2023 (seasonally adjusted and annualised value). Large increases in three industries, namely mining and quarrying, trade, catering and accommodation and personal services, contributed to the inventory build-up.

Net exports contributed negatively to growth in expenditure on GDP in the first quarter. Exports of goods and services increased by 4.1%, largely influenced by increased trade in base metals and articles of base metals; vegetable products; prepared foodstuffs, beverages and tobacco; and machinery and electrical equipment.

Imports of goods and services increased by 4.4%, largely influenced by increased trade in machinery and equipment; chemical products; vehicles and transport equipment; and prepared foodstuffs, beverages and tobacco.