The new gross domestic product (GDP) figures are not good news for consumers, with the latest fall in real GDP meaning the size of South Africa’s economy in the second quarter (Q2) is smaller than it was before the pandemic.
Hayley Parry, a money coach and facilitator for 1Life’s Truth About Money, said: “A contracting economy means potential wage and job cuts and, with the likelihood of a further interest rate hike at the end of September, even less disposable income.
“If you still have a belt left, that means more tightening ahead.” Statistics SA data shows real GDP contracted by 0.7% in Q2 compared to Q1, and was just 0.2% higher than in Q2 last year.
The flooding in KwaZulu-Natal in April and power outages towards the end of the first half of the year were the main drivers behind the slump.
Parry said although household expenditure was up marginally (0.6%), consumers spent less on items like alcohol, tobacco and clothing.
Hopefully, the fuel price reduction and a slowing of food price inflation will provide a little breathing room because households have clearly already slashed consumption on discretionary expenditure.
“As depressing as this economic news is, focusing on the things you can control when it comes to your personal finances is far more productive and empowering than thinking about the things you have no control over,” she said.
“My advice to anyone feeling the heat is to empower yourself with a financial education; learn how to budget smarter not harder, get out of debt and put some money aside for a rainy day.”
Professor Jannie Rossouw, visiting professor at Wits Business School, said the slump in GDP is a major disappointment. “There was no sign of the bounce expected after pandemic restrictions were removed.”
He said it is time for the government to move away from old socialist plans and make new plans which will create jobs. “The department of trade, industry and competition must stop regulating everything that moves and leave it to the private sector to create jobs,” he said.
“Government must only ensure that we have power and that municipalities work.” Research group Oxford Economics Africa says the figure was expected.
“After rising to pre-pandemic levels in Q1 … the latest contraction means the economy is once again smaller than it was before the pandemic.”
The Stats SA data shows more than half the industries have not recovered from the pandemic. “Looking ahead, global economic conditions have deteriorated in recent months and the picture for emerging markets, including China, is worsening.
“Despite decreasing, domestic fuel prices remain elevated and will throttle economic activity in the second half of the year, while a real income squeeze from higher inflation and further interest rate hikes should also dampen economic growth.”
A recession might be avoided this year, although it is probable, and the group forecasts sluggish growth of around 0.2% in Q3, with an expectation the economy will grow by 1.8% in 2022 instead of 1.9% as previously predicted.
