Growth in the real output of the secondary sector slowed sharply in the first quarter of 2021, as growth in the real GVA by both the manufacturing and the construction sectors moderated markedly and that in the electricity, gas and water sector contracted. Activity in the manufacturing sector was suppressed by electricity-supply disruptions and the shortage of certain input materials, coupled with the concomitant rising cost thereof. The volume of electricity produced and consumed both decreased in the first quarter of 2021, reflecting the moderation in overall economic activity as well as bouts of load-shedding due to plant breakdowns at Eskom’s ageing power stations and the delayed return to service of some power units. The slower growth in real construction activity in the first quarter of 2021 was evident in civil construction as well as in non-residential building activity, while residential building activity declined. Despite three consecutive quarterly increases, the real output of the construction sector remained well below pre-lockdown levels and was still 25.3% below its most recent peak in the fourth quarter of 2016.
The real GVA by the tertiary sector expanded at a faster pace in the first quarter of 2021, as the real output of the finance, insurance, real estate and business services sector reverted to an expansion from a contraction in the previous quarter. Growth in the real GVA by the commerce as well as transport, storage and communication services sectors moderated over the period.
Real retail and motor trade activity increased at a slower pace, while real wholesale trade activity switched from a contraction in the fourth quarter of 2020 to an expansion in the first quarter of 2021. The reduced rail freight transportation in part reflected the poor state of South Africa’s rail infrastructure. The number of passenger journeys undertaken decreased in the first quarter of 2021, while the volume of goods transported by road increased.
Contrary to real GDP, growth in real gross domestic expenditure (GDE) accelerated slightly from 10.8% in the fourth quarter of 2020 to 12.2% in the first quarter of 2021. Real inventory holdings decreased for a seventh successive quarter, albeit at a much slower pace, and as such contributed the most to growth in real GDP in the first quarter of 2021. The real final consumption expenditure by both households and general government increased further, but at a slower pace. By contrast, real gross fixed capital formation contracted anew following two quarters of expansion. Real net exports subtracted significantly from overall economic growth in the first quarter of 2021, as real imports increased further while real exports contracted marginally.
The slower growth in real household consumption expenditure in the first quarter of 2021 resulted from slowdowns in real spending on services, semi-durable goods and, in particular, non-durable goods. Real outlays on petroleum products declined significantly while spending on most other non-durable goods increased at a slower pace, likely affected by cautiousness during the second wave of COVID-19 infections. By contrast, real outlays on durable goods surged in the first quarter of 2021 after a marginal increase in the previous quarter. Spending on personal transport equipment rebounded sharply amid record-low interest rates, bringing spending on this subsector close to pre-lockdown levels, with real spending on furniture and household appliances also advancing in the first quarter of 2021.
The ratio of household debt to disposable income decreased slightly from 75.4% in the fourth quarter of 2020 to 75.3% in the first quarter of 2021, as the quarter-to-quarter increase in nominal disposable income exceeded that in household debt. Households’ cost of servicing debt relative to nominal disposable income remained unchanged at 7.7% over this period, amid the stable interest rates.
Households’ net wealth increased further in the first quarter of 2021 as the increase in total assets outweighed that in total liabilities. The value of assets was boosted by an increase in equity holdings in particular, as share prices increased substantially further. The FTSE/JSE All-Share Index (Alsi) reached new highs in the opening months of 2021 and surged by 14.4% in the five months to May 2021, in line with international share prices. In addition, growth in domestic residential property prices accelerated slightly further over the period, supported by increased demand amid the prevailing low interest rates.
The contraction in real gross fixed capital formation in the first quarter of 2021 resulted from the decrease in fixed investment by private business enterprises, as they invested significantly less in transport equipment as well as in machinery and other equipment. Consequently, real gross fixed capital formation by the private sector was still well below pre-lockdown levels. Real capital outlays by the public sector increased at a slower pace in the first quarter of 2021, reflecting the marked slowdown in fixed investment growth by public corporations while that by general government increased at a slightly faster pace.
South Africa’s national saving rate increased significantly from 14.2% in the fourth quarter of 2020 to 18.0% in the first quarter of 2021. The higher saving rates of both corporate business enterprises and households more than offset the increased dissaving by general government. The national saving rate remains much higher than before the COVID-19 pandemic, in part reflecting caution among corporates in distributing dividends to shareholders and in the spending behaviour of households.
The recovery in employment has been much weaker than that in economic activity up to the first quarter of 2021, following the sharp contraction in both employment and output in the second quarter of 2020. Total household-surveyed employment decreased slightly in the first quarter of 2021 and was still 1.4 million below that of a year earlier. The number of unemployed persons remained almost unchanged at just over 7.2 million in the first quarter of 2021, while the number of discouraged work seekers increased significantly. In addition, the ‘other not economically active’ population increased notably as lockdown restrictions still impeded job-searching activity. As a result, the official unemployment rate increased marginally from 32.5% in the fourth quarter of 2020 to a new record high of 32.6% in the first quarter of 2021. The expanded unemployment rate, which includes the discouraged work seekers and those who did not search for work due to other reasons, increased from 42.6% to 43.2% over the same period.
Growth in nominal remuneration per worker in the formal non-agricultural sector accelerated from 0.4% in the third quarter of 2020 to 1.1% in the fourth quarter, as private sector remuneration increased at a slightly faster pace while public sector remuneration contracted notably. The decrease in public sector wages per worker reflected the non-implementation of the annual public sector wage increase in 2020 to curb government expenditure. On an annual average basis, the pace of increase in nominal remuneration per worker slowed gradually from a peak of 13.8% in 2010 to 4.1% in 2019, and then sharply to an all-time low of only 0.8% in 2020. Real wages per worker contracted at a much faster pace of 5.2% in the fourth quarter of 2020, contributing to an annual average decrease of 3.8%.
Labour productivity in the formal non-agricultural sector of the economy increased slightly in the fourth quarter of 2020 but decreased by a notable 2.6% on an annual average basis, reflecting the significant contraction in output in 2020. Growth in the nominal unit labour cost in the formal non-agricultural sector decelerated further to an all-time low of only 0.2% in the fourth quarter of 2020, suggesting the absence of inflationary pressures emanating from wage increases in the current economic environment.
Headline consumer price inflation moved broadly sideways near the 3% lower bound of the inflation target range between July 2020 and March 2021, as the acceleration in consumer goods price inflation was countered by the slowdown in services price inflation. Subsequently, consumer price inflation accelerated to 4.4% in April following a notable quickening in goods price inflation, largely due to the marked acceleration in fuel price inflation and, to a lesser extent, in certain durable and semi-durable goods. This reflected the low base established in April 2020 following the collapse in international crude oil prices as well as the lockdown-induced price imputations by Statistics South Africa (Stats SA) at the onset of the COVID-19 pandemic. However, final and intermediate manufactured producer price inflation has accelerated notably thus far in 2021, with price inflation for intermediate goods surging to 11.4% in April as global supply-chain disruptions have resulted in shortages of some raw materials. Underlying inflationary pressures remained well-contained, despite core inflation accelerating in April 2021 largely due to base effects.
South Africa’s trade surplus with the rest of the world widened slightly in the first quarter of 2021 as the increase in the value of net gold and merchandise exports, which reached a new all-time high, marginally outpaced the increase in the value of imports. The higher value of exported goods reflected an increase in prices, while the value of imports was driven by higher volumes. South Africa’s terms of trade improved for the seventh consecutive quarter in the first quarter of 2021, representing the longest period of consecutive quarterly increases on record.
Exports continued to benefit from the improvement in global economic activity and higher commodity prices, as the value of mining, agricultural and manufacturing exports all increased in the first quarter of 2021. The higher value of imports resulted from an increase in imported mining and manufactured products. Imported refined petroleum products rose significantly as operations came to a halt at key domestic refineries, while the value of imported base metals and articles thereof also increased notably further in order to make up for domestic supply shortages amid significant increases in the prices of these products.
The larger trade surplus, together with a significant narrowing of the shortfall on the services, income and current transfer account, led to a widening of the surplus on the current account of the balance of payments from 3.7% of GDP in the fourth quarter of 2020 to 5.0% of GDP in the first quarter of 2021. The deficit on the income account narrowed significantly along with a slightly smaller services deficit. The marked improvement in the income deficit resulted from another dividend surplus in the first quarter of 2021 – only the second surplus in 25 years – as gross dividend receipts increased notably while gross dividend payments decreased.
The net outflow of capital on South Africa’s financial account of the balance of payments increased to R64.7 billion in the first quarter of 2021 following an outflow of R58.9 billion in the fourth quarter of 2020. On a net basis, portfolio investment, financial derivatives and other investment recorded outflows, while direct investment and reserve assets registered inflows. Portfolio investment flows largely reflected the further acquisition of foreign portfolio assets by the South African domestic private banking and non-banking sectors, in particular foreign debt securities.
South Africa’s total external debt increased substantially from US$156.9 billion at the end of September 2020 to US$170.4 billion at the end of December. The rand-denominated external debt increased significantly due to the net purchases of domestic rand-denominated bonds by non-residents, an increase in the market value of non-resident bond holdings, and an increase in the United States (US) dollar value of rand-denominated external debt as the exchange value of the rand appreciated over the period. However, South Africa’s total external debt decreased in rand terms over this period, due to the appreciation in the exchange value of the rand against the US dollar.
South Africa’s positive net international investment position (IIP) decreased in the three months to the end of December 2020, as the value of foreign assets declined while that of foreign liabilities increased further. Movements in the exchange value of the rand had a significant effect on foreign assets and, to a lesser extent, on foreign liabilities, as the nominal effective exchange rate (NEER) of the rand increased, on balance, by 11.6% in the fourth quarter of 2020.
The NEER increased by a further 1.0% in the first quarter of 2021. The exchange value of the rand initially depreciated in January 2021 as sentiment towards the rand deteriorated amid further lockdown restrictions brought about by the second wave of COVID-19 infections. However, the external value of the rand then appreciated up to mid-June 2021, reflecting improved investor sentiment towards some emerging market currencies amid continued accommodative monetary policy in the US as well as better-than-expected domestic economic outcomes.
South African government bond yields increased notably between early February 2021 and the end of March, reflecting net sales of bonds by non-residents in tandem with the increase in US government bond yields amid concerns over global inflation. Subsequently, domestic bond yields receded up to mid-June along with the continued further appreciation in the exchange value of the rand and demand for higher-yielding emerging market assets as COVID-19 vaccination gained traction globally and as the US Federal Reserve allayed concerns about higher interest rates in the short term despite rising inflation.
Growth in the broadly defined money supply (M3) moderated significantly in the first four months of 2021, partly reflecting base effects a year after the initial implementation of the COVID-19 lockdown restrictions. The deposit holdings of the corporate sector contracted in April 2021, led by a notable contraction in those of financial companies, which reflected the movement of deposits to higher-yielding investments in the low interest rate environment. Household deposits continued to grow at double-digit rates up to March 2021 before decelerating in April. The deposit balances of households reflected cautiousness in the uncertain environment and banks’ efforts to attract and maintain relatively stable deposit balances.
Continued muted growth in the total loans and advances extended by monetary institutions to the domestic private sector reflects the effect of the lockdown on economic activity, and hence on the demand for credit. Credit extension to companies contracted on a year-on-year basis in the first four months of 2021 as they avoided undue exposure to debt in the current uncertain economic environment. By contrast, the moderation of credit extension to the household sector throughout 2020 seems to have bottomed out in early 2021 as fewer COVID-19 restrictions and low interest rates probably boosted demand for credit somewhat, in particular for mortgage advances and instalment sale credit.
The preliminary non-financial public sector net borrowing requirement increased sharply to R547 billion in fiscal 2020/21. The increase resulted from a significant widening in the cash deficit of national government and as social security funds reverted from a cash surplus to a deficit. By contrast, the borrowing requirement of the non-financial public enterprises and corporations decreased significantly.
National government’s cash book deficit increased significantly in fiscal 2020/21 and far exceeded the February 2020 Budget projection, but was less than expected in the 2020 Medium Term Budget Policy Statement (2020 MTBPS). The larger cash book deficit resulted from significantly lower revenue and higher expenditure than in the previous fiscal year. Although national government revenue contracted by an unprecedented 8.0% in fiscal 2020/21, this was much less than the contraction of 18.3% expected in the 2020 MTBPS. The higher net borrowing requirement of national government was financed primarily in the domestic financial markets through the net issuance of domestic long-term government bonds and Treasury bills. The net issuance of foreign bonds and loans was also much higher than in the previous fiscal year. Accordingly, the gross loan debt increased sharply by 20.7% year on year to R3 936 billion as at 31 March 2021, or 78.8% of GDP.
Forthcoming revision of South Africa’s national accounts and balance of payments statistics
Stats SA has postponed the publication of the benchmarked and rebased national accounts statistics, for the period from the first quarter of 1993 to the fourth quarter of 2020, from May 2021 to August.
The September 2021 edition of the Quarterly Bulletin will reflect the outcome of the above-mentioned benchmarked and rebased national accounts statistics as well as the balance on the current account of the balance of payments. The balanced production, expenditure and income statistics from the first quarter of 1993 to the second quarter of 2021 will then also be available on the South African Reserve Bank website.