Positive growth data fails to calm SA markets

Positive growth data fails to calm SA markets


By Chris Harmse

SHARE prices in South Africa remained negative and volatile last week, despite better than expected economic growth data and a record current account surplus for the country.

StatsSA announced last week that South Africa’s growth rate (change in real GDP) had increased during the first quarter of 2021 at 4.6 percent over the fourth quarter of 2020 (seasonal adjusted and annualised). This after an adjusted growth rate of 5.8 percent during the fourth quarter of 2020 was recorded.

Of significance is the widespread growth pattern over the economy. Eight of the 10 major sectors recorded positive growth rates during the first quarter of the year. Only the electricity and the agriculture sectors recorded growth rates of -0.1 percent.

It is a seasonal trend that agriculture remains subdued during the first quarter of the year, as most of the summer rainfall crops, fruit, wine, wool and other agriculture produce is only harvested and sold from the second quarter.

The finance industry increased by 7.4 percengt and the mining industry grew by 18.1 percent and contributed 1.2 percent to the GDP growth rate of 4.6 percent.

Household final consumption expenditure remained one of the strong drivers on the expenditure side of the economy, as it increased at a rate of 4.7 percent during the first quarter. This better than expected numbers together with the announcement by President Cyril Ramaphosa that the threshold for self-generation power project licenses would be lifted for projects generating up to 100MW, may indicate that the economy could grow more than 4.5 percent in 2021 and even up to 3 percent in 2022, against 1.6 percent projected earlier.

The announcement by the reserve bank that South Africa’s current account had recorded its second largest surplus of R267 billion during the first quarter also came in much higher than expected. The current account surplus is now 5 percent of GDP, up from the 3.7 percent recorded during the fourth quarter.

The large surplus is largely attributed to the surge in exports on the back of high commodity prices.

Despite this positive economic data, data showing that the US inflation rate increased to 5 percent, its highest level rate since 2008, increased fears that further demand and supply chain bottlenecks could put further upward pressure on inflation, forcing the US Federal Reserve to slow stimulus programmes and also increase its bank rate. (The Fed will announce its latest decision on Wednesday).

The inflation rate announcement did not have a negative effect on US equities as the S&P500 reached a record high level on Thursday. Nevertheless, share prices in emerging countries like South Africa came under pressure.

On the JSE, the all share lost 800 points, or 1.16 percent, last week on the back of a strong downward movement in resources. The Resource10 index traded down by 8 percent, mostly due to much lower platinum and other metal prices both in dollar and rand terms that led to a sell-off.

The stronger rand over the last week that traded well below the R13.70 to the dollar level most of the time, helped financial shares to improve by 7.3 percent and listed property to gain 2 percent at the close on Friday over the previous week’s level.

The rand also contributed to lower bond rates as the R186 treasury rate fell from 7.27 percent to 7.09 percent.

This week StatsSA will release the country’s retail sales data for May.

Chris Harmse is an economist of CH Economics

*The views expressed here are not necessarily those of IOL or of title sites

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