South Africa's gross domestic product (GDP) increased by 1.2% in the second quarter.

The uptick in GDP is "certainly a welcome development", especially given the current economic environment against the backdrop of rising unemployment levels, rising input costs, increasing energy costs and the Covid-19 pandemic, the Steel and Engineering Industries Federation of Southern Africa (Seifsa) says.

Encouragingly, the agriculture and mining sectors showed the best growth rates at 6.2% and 1.9%, Seifsa points out, adding that the gross fixed capital formation (GFCF) data released alongside the GDP figures is "also supportive of the positive trends we are seeing in GDP and production figures", as GFCF decreased by a marginal 0.9%% in the second quarter.

The increase was attributed to increases in machinery and transport equipment.

The transport, storage and communications industries, meanwhile, grew by 6.9% during the second quarter, and made the largest contribution to GDP growth, at 0.5 percentage points.

Increased economic activity was reported for land transport and communication services.

Seifsa chief economist Chifipa Mhango, however, says it is important to note that the metals and engineering industry is heavily reliant on the performance of the mining, construction and building industry and other manufacturing market segments to survive, as these are the key sectoral markets.

Mhango says it is encouraging to see a return in demand for the metals and engineering industry products in the economy as the South African government commits to R792.1-billion public infrastructure spending into the next three fiscal years. However, to guarantee stock availability, Mhango warns that the industry will need to move back to higher levels of capacity utilisation from the current Covid-19 driven levels of 75%.

Meanwhile, household final consumption expenditure increased by 0.5% in the second quarter, contributing 0.3 of a percentage point to total growth.

The highest growth rates and largest contributors were seen in durable and non-durable goods, Statistics South Africa (Stats SA) said on September 7, noting that the main positive contributors to growth in household final consumption expenditure (HFCE) were expenditures on transport (2.7% and contributing 0.4 of a percentage point); health (2.5% and contributing 0.2 of a percentage point); food and nonalcoholic beverages (1.7% and contributing 0.2 of a percentage point); restaurants (2.4% and contributing 0.1 of a percentage point); communication (1.6% and contributing 0.1 of a percentage point); and clothing and footwear (1.1% and contributing 0.1 of a percentage point).

A negative contribution to growth in HFCE was reported for expenditures in the ‘other’ category, decreasing by 3.8% and contributing -0.5 of a percentage point, mainly because of lower spending on insurance services in the second quarter.

Final consumption expenditure by general government decreased by 0.1% in the second quarter, and decreases in compensation of employees and spending on goods and services were reported in the second quarter.

GFCF increased by 0,9%. The main contributors to the increase were machinery and equipment (1.8% and contributing 0.7 of a percentage point), ‘other’ assets (6.4% and contributing 0.7 of a percentage point) and transport equipment (1.1% and contributing 0.1 of a percentage point).

There was a R21.7-billion drawdown of inventories in the second quarter of 2021 (seasonally adjusted and annualised), while large decreases in electricity and mining contributed to the inventory drawdowns experienced in the second quarter of 2021.

Net exports contributed positively to growth in expenditure on GDP in the second quarter. Exports of goods and services increased by 4%, and was largely influenced by increased trade in mineral products; pearls, precious and semi-precious stones; precious metals; and vehicles and other transport equipment.

Imports of goods and services increased by 0.4%, driven largely by increases in mineral products; base metals and articles of base metals; and animal and vegetable fats and oils.

Unadjusted real GDP for the first six months of this year increased by 7.5% compared with the first six months of 2020.

Insurance company PPS Investments, in a separate statement, says the GDP figures for the second quarter means that the South African economy has now grown for four consecutive quarters.

The pace of growth accelerated from 1% in the first quarter, which was revised lower from 1.1%. Although the economy is 19.3% larger than a year ago, having rebounded off a depressed base, overall economic activity is now only back to 2017 levels.

While the positive figures were largely supported by a progressive economic reopening and the continued normalisation of activity, PPS notes that the third wave of Covid-19, which gathered momentum in June, "appears to have had limited impact on second quarter growth which beat expectations".

It has however been more difficult than usual to forecast growth, "given the recent rebasing by Stats SA," the company says.

Looking ahead, PPS says it is cautiously optimistic regarding the outlook for growth, as "there is still some scarring from the crisis last year, but we are emerging on a reasonably good footing, with prospects appearing better than they have in prior years. Although there are still risks, growth is returning, we are seeing promising reform locally, and the fiscus is in slightly better shape". 

Against the backdrop of improved growth and attractive valuations, PPS has upweighted exposure to South African growth asset classes in portfolios, and retains a healthy weighting toward South African government bonds as well, while maintaining meaningful offshore exposure as a diversifier.

South African trade union Solidarity, on the other hand, has expressed concern about the state of the South African economy, saying the 1.2% growth rate is "not nearly enough to compensate for the past year’s continued decline".

The union says it will take "a very long time" for South Africa’s recovery to reach the pre-pandemic economic levels.

"Recovery does not only take place slowly; it is also being actively hampered by the government's ineffectiveness. While in many cases the rest of the world has already made up for the losses of 2020, and is even growing, South Africa continues to wallow in a swamp of poor policies and often unnecessary restrictions,” comments Solidarity economic researcher Theuns du Buisson.
 
According to Du Buisson, no single sector has shown significant growth to adequately offset the losses of 2020.
 
“A worrying trend that continues is the decline in fixed capital formation. Without sustained investment in equipment and infrastructure, the country will not be able to create sustainable prosperity. It declined in the first quarter, as the trend has been since 2018. People are therefore taking steps to undo their investments in South Africa,” Du Buisson notes.
 
He further believes that the vaccine programme is not fully up and running because there is very little money for campaigns to mobilise people to receive vaccinations. He is of the opinion that the government is not pursuing any opportunities to get the country out of its lockdown state so that people can return to “normal”.
 
“Continued lockdowns, restrictive regulations and legislation are all the order of the day, and our economy is suffering. It is time for the state to realise that it has no management abilities and that it must impose fewer controls by the state, relax its regulations, end the lockdown and allow the private sector to take control and stimulate growth,” Du Buisson said.

While the South African economy expanded by an average of 7.5% year-on-year during the first half of this year, multinational professional services firm PwC stated that "this did not translate into more jobs".

In a separate statement on Tuesday, PwC noted that while the country had more than 15-million (formal and informal) jobs at the end of last year, employment fell to over 14.9-million in the first quarter of this year and further decreased in the second quarter, marking a net loss of 82 000 jobs during the first half of the year. Formal non-agricultural employment declined from 10.4-million in the fourth quarter of 2020 to 10.2-million in the second quarter of 2021, which PwC said marks a net loss of nearly 300 000 formal jobs during the first half of this year.

South Africa now has the highest official unemployment rate globally - 34.4% in the second quarter, which is higher than that of Nigeria (33.3%), Bosnia and Herzegovina (32.4%), Angola (31.6%) and Palestine (26.4%).

Looking ahead, PwC says it is likely that the third quarter will see some pressure on the rate of recovery owing to a combination of adverse effects from the civil unrest in KwaZulu-Natal and Gauteng in early July as well as an extended Level 3 lockdown still in place.

The severity of the mid-year wave, and the accompanying strictness of associated lockdowns, is the primary driver behind the nature of the economic recovery alongside the impact of electricity load-shedding, PwC said, adding that it therefore expects the current adjusted level 3 lockdown to be in place for the rest of September.

While some forecasts suggest that the South African economy will grow by more than 4% this year, PwC's modelling points to a figure closer to 2.5%.

"The mediocre year-on-year growth seen in the first half of this year coupled with the negative factors highlighted for the third quarter does not encourage much optimism about how quickly South Africa’s GDP will be back to pre-pandemic levels. Our baseline and downside assumptions also consider a likely fourth wave of infections during the summer holidays. Health Minister Joe Phaahla recently warned that authorities are expecting a fourth wave to materialise in November. He expressed concern about the long tail of the third wave and the risk that South Africa could move from the current wave straight into another wave over the summer".

Meanwhile, analysts have, in recent weeks, expressed concern about the GDP statistics for the second quarter, owing to the fact that the mining production statistics for June had yet to be finalised.

Stats SA, however, said it would make use of estimated mining production figures for June.

Stats SA in August also announced that it had undertaken a benchmarking and rebasing exercise, setting 2015 instead of 2010, as the reference year for the statistics.