South African GDP boosted as investment makes gradual recovery

In expenditure terms, a recovery in investment and expanded household spending boosted South Africa’s gross domestic product (GDP) growth in the first quarter this year, according to a report issued by economic research firm Trade and Industrial Policy Strategies (Tips) on June 10.

Gross fixed capital formation rose by 3.6% for the period, while private investment climbed rapidly and general government investment reversed its downward trend. Household consumption, mostly by the richest 20% of households, rose by 1.4%, while government consumption increased by 1%.

Overall, Tips reported, investment remained 6% below pre-pandemic levels, despite some recovery since the middle of last year. Investment rose by 4.1% in the first quarter this year, with a 4.9% increase in government investment and 4.1% in private investment, which is far larger.

However, State-owned corporations cut their investment by 1.1%.

In mining, profits fell in sync with global prices but were still much higher than in the late 2010s.

Moreover, Tips reported that manufacturing returns remained strong.

The private investment growth of 4.1% in the first quarter this year was about the same as in the growth experienced in the fourth quarter of last year in seasonally adjusted terms. Despite the relatively rapid growth over these two quarters, it remains 7% lower than before the pandemic owing to the exceptionally steep decline in the second quarter of 2020.

The general government investment increase of 5% partially reversed the 7% fall experienced in the previous quarter. As a result, general government investment

exceeded its pre-pandemic levels in the first quarter this year.

Investment by state-owned companies continued to stagnate, however, and now lags 7% behind pre-pandemic levels.

Tips reported that investment climbed from 13% of the GDP in mid-2021 to 13.7% in the first quarter this year, mostly because of the uptick in private investment. However, investment remains far below the level required to drive rapid growth and industrialisation.

Although the return on capital plunged in mining, it remained high compared with the previous decade, Tips said.

In the fourth quarter last year, mining prices fell to their lowest level in six quarters. They remained high by historic standards, however, and likely received a boost as Russia’s invasion of Ukraine led to a renewed spike in the first quarter of this year.

Meanwhile, manufacturing profits were lower than a decade ago, but higher than in the slow years just before the pandemic.

Engineering News

Copyright © 2022 Africa Investment Consortium. All Rights Reserved.