FNB said in its Week Ahead note that Stats SA would publish gross domestic product (GDP) data for the second quarter of 2022 tomorrow.
It expected the economy to have shrunk by 0.9 percent quarter on quarter (q/q) during the second quarter underpinned by a myriad of headwinds. This is below the Bloomberg consensus forecast of a contraction of 0.5 percent q/q (based on five research houses at the time of writing).
“While most sectors, as indicated by the high-frequency indicators, pointed to a quarterly contraction in GDP, the risk to our forecast lies with the personal services, finance, real estate and business services, and general government sectors,” it said.
This risk was reflected in the Bloomberg survey, with expectations for economists ranging between 0.5 percent q/q to -0.9 percent q/q.
Furthermore, FNB said its prediction was for annual (year-on-year) growth in the second quarter to have been subdued at around 0.6 percent (from 3 percent year on year during the first quarter of 2022).
FNB said the second quarter was critical and a trying time for the domestic economy.
“The economy was confronted by a myriad of headwinds in 2Q22, which collectively severely affected economic activity, primarily in the extractive and productive sectors. Our analysis indicates that the quarterly contraction in GDP is likely to have been driven mainly by the primary and secondary sectors of the economy,” it said.
Specifically, mining production declined by 3.3 percent q/q in the second quarter due to reduced gold and coal output.
“We expect quarterly growth momentum in the agricultural sector’s output to have been sustained into 2Q22, although moderately impeded by wet weather conditions and steep input costs. A higher statistical base from 2Q21 is likely to have affected annual growth in the agricultural sector’s Gross Value Added,” it said.
We expect the manufacturing sector to have had the largest negative contribution to the GDP growth outcome due to manufacturing output having declined sharply by 5.5 percent q/q in the second quarter, following growth of 4.6 percent in the first quarter.
“Decreased activity in this sector was primarily driven by reduced activity in the petroleum-related production division, automotive, basic iron and steel, and wood and wood products divisions. Due to reduced electricity production and consumption, activity in the electricity, water and gas sector is expected to have declined.”
Economic weakness in this sector seems to have been sustained into the beginning of the third quarter, with July electricity production having contracted sharply by 3.2 percent m/m (7.7 percent year on year), it said.
“Although the recovery in the construction sector remains largely incomplete, we have pencilled in some marginal growth for 2Q22 underpinned by the robust growth in residential buildings completed, improved residential building business confidence, and close to 100 000 jobs that the formal construction sector created in 2Q22. Flooding, elevated building costs, and the usual infrastructure project delays pose a downside risk to the expected construction sector’s performance,” FNB said.
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