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COMMENTARY
SA economy signals stronger
post-COVID bounce than estimated
The South African economy rebounded further in the final quarter of last year, with Gross Domestic Product (GDP) expanding 6.3% quarter-on-quarter (seasonally adjusted annualised). Third quarter growth was also revised higher, from 66.1% to 67.3% quarter-on-quarter (seasonally adjusted annualised), signalling a stronger post-COVID bounce than initially estimated.
By Reza Hendrickse, Portfolio Manager at PPS Investments
For the full year, the SA economy contracted 7.0%, severely impacted by the pandemic lockdowns, during which economic activity ground to a halt. Although last year was the worst in decades, growth has in fact surprised positively, with initial forecasts having predicted an even deeper recession.
Of the three main economic sectors, the secondary and tertiary sectors (which relate to manufacturing and the services industries) showed the strongest growth. Drilling down deeper, eight out of the ten industries measured delivered positive growth, with manufacturing and trade together contributing around half of this quarter’s growth in economic output.
Manufacturing was driven largely by
food and beverages, motor vehicles, and metal and steel production, all of which benefitted from continued normalisation in production and demand patterns. Similarly, trade was boosted by sectors exposed to retail and motor vehicle trade as well as catering and accommodation, which were all amongst the sectors hardest hit by the COVID-19 restrictions. Along with manufacturing and trade, the construction industry also rebounded particularly strongly, with all three of these posting double-digit growths over the quarter.
Potential for a positive near-term surprise
Looking ahead, we expect the SA economy to continue on the path of gradual internal repair, while also benefitting from the tailwind of accelerating global growth this year. Although longer term we still consider the economy to be a structurally low growth one, there is some potential for a positive near-term surprise, given how low expectations currently are. Confidence should continue to rebound, particularly as the vaccine rolls out, while the strong performance of the mining sector should trickle through to other parts of the economy, as related sectors benefit. It will take some time for the local
economy to get back to pre-COVID-19 levels, and load shedding will probably continue to hamper growth in the near term, but any growth ahead of expectations will be well received, and will also make the job of National Treasury easier, as they work to maintain debt sustainability.
Visit www.pps.co.za for more information.
Reza Hendrickse, Portfolio Manager at PPS Investments
PPS Investments, established in 2007, is the investment manager within the 80-year-old PPS Group, South Africa’s largest multidisciplinary society of graduate professionals with around 150 000 members. PPS Investments offers a comprehensive range of competitive investment solutions designed to empower investors at all life stages to plan, protect and provide for their financial goals. Having been the forefront of progressive, transparent investments since inception, the dynamic asset manager carefully designs its investments with the input and feedback from the graduate professional market – a client centric approach which both graduate professionals and general investors can benefit from. Its flagship is the PPS Portfolio range which offers diversification across optimally combined, complementary asset managers. PPS Group is mutual financial services company and shares 100% of its profits with its members. Thus, when PPS members invest with PPS Investments, whether in its single- or multi-manager funds, qualifying members benefit from increased profits into the PPS Profit-Share Account.
