GDP SET TO REMAIN ON GROWTH PATH

The release of the GDP data for 2021 by Statistics South Africa (SSA) was overshadowed by Russia’s invasion of Ukraine and the subsequent scurry to try and determine the impact of this tragic mega-event on the global and South African economy.

Now that negotiations for a cease-fire seem to be progressing well, it is useful to revisit the latest national accounts data in more detail. Thanks to the predictable surge in mining activity (boosted by high commodity prices) and the resurgence of the trade & hospitality sectors, nominal GDP increased by 12% to a level of close to R6.2 trillion.

Deflated by the average consumer price index (CPI) for 2021, this translates into a real growth rate of 7.4%. Unfortunately, SSA employs a rather complicated set of formulas to remove the effect of inflation from the nominal data, which yielded a lower real growth rate of 4.9%.

There is also a huge question mark over the calculation of value added by the agriculture sector. According to data from the organisations representing the largest contributors to agriculture output, 2021 was a record year for most product groups, but SSA data shows a decline in the sector’s value added of 11% (in nominal terms).

The record export performance of the agriculture sector during 2021 serves as further confirmation of a likely grave error in SSA’s estimation of the sector’s contribution to GDP in 2021. Under the conservative assumption of a 10% nominal increase in agriculture value added in 2021, South Africa’s real GDP growth rate for last year stands at an impressive 8% (deflated by the CPI).

An encouraging feature of the GDP data for 2021 is the recovery of net capital formation, which recorded a very healthy nominal growth rate of almost 14%, boosted by a predictable recovery of inventories. During 2020, when the Covid pandemic set in, inventories declined by a record R53.6 billion.

In 2021, this component of capital formation remained in negative territory, but at a figure of minus R9 billion, it represents a turnaround of more than R44 billion. Further recovery during 2022 is bound to occur, which should provide further growth momentum for new investment in productive assets (including infrastructure). In 2021, both the private sector and the public corporations managed to increase their expenditure on new economic capital in real terms.

The real growth rates for the country’s GDP and key sectors in 2021 are listed in the table (deflated by the CPI):

Attention now turns to the prospects for another solid economic performance in 2022, with wide-ranging opinions amongst different forecasting agencies and institutions. According to the IMF, South Africa should record real GDP growth of just less than 2%. National Treasury is more upbeat, pitching at 2.1%.

When considering the strong likelihood of a full recovery of the hospitality industry, an impressive pipeline of infrastructure projects, government’s new initiatives to cooperate with the private sector in the area of deregulation, and the imminent second phase of inventory recovery, these forecasts seem ultra conservative.

A number of reputable institutions do expect significantly higher growth this year, as illustrated by the graph. Hopefully, National Treasury will eventually prove to have erred on the side of the cautious (just like last year!)