Real gross value added (GVA) by the primary sector increased by 2.1% in the fourth quarter of 2021 following a significant contraction of 8.4% in the third quarter. The turnaround resulted from a notable increase in agricultural output as the production of especially animal products increased strongly. By contrast, mining output contracted at a faster pace in the fourth quarter of 2021, with iron ore, coal, gold, manganese ore and diamonds contributing the most to the decline.
The real output of the secondary sector increased by 1.2% in the fourth quarter of 2021 after contracting by 3.0% in the third quarter. The partial recovery resulted from an increase in manufacturing output – especially non-durable goods – from the low base in the third quarter, following some plant shutdowns. The real GVA by the construction sector contracted further in the fourth quarter of 2021 as civil construction as well as residential and non-residential building activity decreased. Construction output has declined steadily for five consecutive years since 2016, and it was the only sector to register a contraction in real GVA in 2021. The real output of the sector supplying electricity, gas and water also contracted in the fourth quarter of 2021 as demand for electricity was weak, particularly from the electricity-intensive mining sector, and as supply was disrupted by the renewed implementation of load-shedding.
The real GVA by the tertiary sector reverted from a contraction in the third quarter of 2021 to an increase in the fourth quarter. Real economic activity increased in the commerce and in the transport, storage and communication services sectors following contractions in the previous quarter, while output in the general government and in the finance, insurance, real estate and business services sectors decreased in the fourth quarter. Real economic activity increased in the retail and motor trade as well as in the catering and accommodation subsectors, consistent with increased final household consumption expenditure in the fourth quarter. The catering and accommodation subsector was further supported by domestic tourism over the festive season following the easing of domestic COVID-19-related restrictions. The higher output of the transport sector was underpinned by increased activity in land transport and transport support services in the fourth quarter. The contraction in real output of the finance, insurance, real estate and business services sector mainly reflected lower activity in financial market and monetary intermediation, while activity increased in the insurance and pension fund subsectors.
Like real GDP, real gross domestic expenditure (GDE) switched from a contraction of 0.6% in the third quarter of 2021 to an expansion of 1.3% in the fourth quarter. The turnaround resulted mainly from increases in the final consumption expenditure by households and real gross fixed capital formation, while final consumption expenditure by general government increased only marginally. By contrast, real inventory holdings were depleted anew and subtracted the most from overall economic growth in the fourth quarter of 2021.
Real final consumption expenditure by households advanced by 2.8% in the fourth quarter of 2021 after contracting by 2.4% in the third quarter, when it was suppressed by civil unrest in July. The increase was broad-based as real spending on most subcategories of durable, semi-durable and non-durable goods as well as services increased notably in the fourth quarter, in line with an increase in the real disposable income of households and a steady increase in credit extension during the quarter. However, real spending on personal transport equipment increased only marginally in the fourth quarter of 2021 as motor vehicle sales were still adversely affected by inventory shortages due to lingering supply chain constraints. Spending by households on fuel, power and water remained unchanged from the third to the fourth quarter as the cumulative increase in fuel prices of almost R6 per litre during 2021 likely affected spending patterns.
Household debt increased at a slower pace in the fourth quarter of 2021 while nominal disposable income rebounded from a contraction in the third quarter. Consequently, the ratio of household debt to nominal disposable income decreased to 66.2% in the fourth quarter of 2021 from 68.0% in the third quarter. Growth in household debt accelerated from 4.2% in 2020 to 6.9% in 2021. However, household debt as a percentage of nominal disposable income decreased from 68.7% to 67.0% over the same period, as the annual increase in the nominal disposable income of households exceeded that in household debt.
Households’ net wealth increased further in the fourth quarter of 2021 as the increase in the value of assets outweighed that in liabilities. The higher value of assets reflected an increase in equity holdings along with a substantial increase in share prices as the FTSE/JSE All-Share Index (Alsi) increased by 14.7% in the fourth quarter of 2021. For the year as a whole, the Alsi increased by 24.1% – the strongest annual increase since 2009 – mirroring higher share prices on international bourses. This boosted the value of household assets and, with liabilities increasing at a much slower pace, resulted in an increase in households’ net wealth in 2021.
Real gross fixed capital formation increased by 1.9% in the fourth quarter of 2021 after decreasing slightly in the previous quarter as capital spending by private business enterprises and public corporations rebounded, while fixed investment by general government contracted at a faster pace. Measured by type of asset, real fixed capital outlays on machinery and other equipment increased the most in the fourth quarter of 2021, while investment in non-residential buildings and construction works decreased. Real gross fixed capital formation increased by 2.0% in 2021 after contracting for five consecutive years.
Total household-surveyed employment decreased significantly in the third quarter of 2021, spearheaded by a sharp decrease in formal employment. The decrease in employment was broad-based across the different sectors, with the outcome impacted by civil unrest in July, while also noting a significantly lower response rate of the Quarterly Labour Force Survey (QLFS). This likely exacerbated the sharp increase in the not economically active population as the number of discouraged work seekers and those who could not search for work due to other reasons increased notably. The number of unemployed persons decreased by much less than the number of employed persons, resulting in the official unemployment rate increasing further from 34.4% in the second quarter of 2021 to 34.9% in the third quarter.
By contrast, enterprise-surveyed formal non-agricultural employment increased in the third quarter of 2021, boosted by temporary public sector employment that was mostly related to the local government elections. However, private sector employment decreased in the third quarter and fell below the recent pandemic-induced low recorded in the second quarter of 2020.
Year-on-year growth in nominal remuneration per worker in the formal non-agricultural sector moderated slightly from 10.1% in the second quarter of 2021 to 9.1% in the third quarter. Private sector remuneration growth per worker slowed over this period but remained elevated, while growth in public sector remuneration per worker accelerated following the implementation of the 2021 public sector wage agreement in August and the resultant back-pay.
Labour productivity growth in the formal non-agricultural sector of the economy decelerated markedly from 18.0% in the second quarter of 2021 to 2.8% in the third quarter as year-on-year output growth slowed significantly, while employment increased at a constant year-on-year pace. Conversely, the change in nominal unit labour cost in the formal non-agricultural sector reverted from a year-on-year decrease of 6.6% in the second quarter of 2021 to an increase of 6.5% in the third quarter, as the marked slowdown in output outweighed that in total remuneration on a year-on-year basis.
Domestic inflationary pressures increased throughout 2021, with headline consumer price inflation accelerating from a low of 2.9% in February to 5.9% in December before slowing somewhat to 5.7% in January 2022. Similarly, producer price inflation for final manufactured goods accelerated to 10.8% in December 2021 before slowing to 10.1% in January 2022. Inflationary pressures emanated mainly from record-high fuel prices following the continued increase in international crude oil prices and, to a lesser extent, higher electricity and food prices. In addition, services price inflation has accelerated gradually since mid-2021 from the COVID-19-induced lows in the first half of the year.
South Africa’s trade surplus with the rest of the world narrowed further in the fourth quarter of 2021 as the value of merchandise imports increased more than that of net gold and merchandise exports. The increase in imports reflected both higher prices and higher volumes, while the increase in exports resulted from increased volumes as the decline in international commodity prices lowered export prices. This resulted in a further deterioration in South Africa’s terms of trade in the fourth quarter of 2021.
The value of merchandise imports increased significantly in the fourth quarter of 2021, boosted by manufactured and mining products. Manufacturing imports were largely driven by increased imports of machinery and electrical equipment, vehicles and transport equipment as well as textiles and articles thereof. The increase in mining imports mainly resulted from higher imports of mineral products as well as base metals and articles thereof. The higher value of mineral imports reflected the increased importation of crude oil and refined petroleum products as both their prices and the physical quantity of crude oil increased.
The value of merchandise exports increased anew in the fourth quarter of 2021 after contracting in the third quarter as manufacturing and agricultural exports increased while mining exports decreased. Manufacturing exports were mainly lifted by increased exports of vehicles and transport equipment, while the value of agricultural exports was boosted by higher fruit exports. By contrast, the value of mining exports was dragged down by mineral products as well as pearls, precious and semi-precious stones, particularly platinum group metals (PGMs).
The shortfall on the services, income and current transfer account narrowed for a second consecutive quarter in the fourth quarter of 2021, mainly due to smaller deficits on the income and current transfer accounts, while the services deficit increased somewhat. However, the trade surplus decreased by more than the deficit on the services, income and current transfer account in the fourth quarter of 2021, resulting in the surplus on the current account of South Africa’s balance of payments narrowing further from 3.5% of GDP in the third quarter of 2021 to 1.9% of GDP in the fourth quarter.
The net outflow of capital on South Africa’s financial account of the balance of payments increased from R30.4 billion in the third quarter of 2021 to R49.9 billion in the fourth quarter. On a net basis, portfolio investment and reserve assets recorded outflows in the fourth quarter, while direct investment, financial derivatives and other investment recorded inflows. Portfolio investment outflows reflected continued non-resident net sales of both equity and debt securities as well as the acquisition of foreign portfolio assets by the domestic private non-banking sector.
South Africa’s total external debt decreased from US$170.6 billion at the end of June 2021 to US$165.0 billion at the end of September, largely due to a decrease in rand-denominated external debt. Foreign currency-denominated external debt also decreased slightly over
South Africa’s positive net international investment position (IIP) decreased further from the end of June 2021 to the end of September as the value of foreign liabilities increased more than that of foreign assets. The net IIP was significantly influenced by Prosus N.V. acquiring about 45% of Naspers Ltd N ordinary shares from existing Naspers Ltd shareholders as well as the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) allocation of XDR2.9 billion (US$4.2 billion) to South Africa in the third quarter of 2021.
The nominal effective exchange rate (NEER) of the rand decreased by 4.5% and 4.1% in the third and fourth quarter of 2021 respectively. In October and November 2021, the NEER decreased mainly on concerns over higher global inflation, with several emerging market countries tightening monetary policy, and in anticipation of tighter monetary policy in the United States (US) and Europe as well. The NEER then recovered in the three months to February 2022, supported by higher export commodity prices and as the US dollar decreased on a trade-weighted basis against major trading partners over this period.
South African government bond yields trended higher throughout most of 2021 before decreasing from the end of November to mid-February 2022. The decrease reflected the appreciation in the exchange value of the rand and increased demand for rand-denominated bonds by non-residents. Domestic bond yields then increased sharply up to 8 March 2022 as financial markets were severely impacted by the conflict between Russia and Ukraine, before decreasing somewhat in subsequent days.
Domestic money market interest rates increased in the fourth quarter of 2021 and in the opening months of 2022, with the medium- and longer-term rates increasing more than the short-term rates. This reflected fluctuations in the exchange value of the rand and higher consumer price inflation, and was in line with the three consecutive 25 basis points increases in the repurchase (repo) rate from the November 2021 to the March 2022 monetary policy committee meetings. Rates on most forward rate agreements (FRAs) also trended higher up to mid-March 2022 in response to the recent higher inflation outcomes and expectations of further sharp fuel price increases in the wake of the Russia-Ukraine conflict.
Growth in the broadly defined money supply (M3) accelerated further in the fourth quarter of 2021 to rates that had prevailed in 2018. The acceleration in M3 growth during the second half of 2021 mainly reflected a rebound in growth in the deposits of financial companies along with gradually faster growth in household deposits. By contrast, growth in the deposits of non-financial companies moderated further from the elevated rates registered in 2020. Despite the recent acceleration, the annual average rate of increase in M3 of only 4.0% in 2021 was the lowest in the past decade.
Similarly to money supply, year-on-year growth in total loans and advances extended by monetary institutions to the domestic private sector accelerated in the second half of 2021. This reflected the continued recovery in loans to companies following the earlier contraction as well as steady growth in credit extension to households, as consumer demand improved amid the easing of the COVID-19 lockdown restrictions. Although mortgage advances were the main driver of loans to households during 2021, growth slowed somewhat in the fourth quarter of the year along with the moderation in residential property price growth.
The preliminary non-financial public sector borrowing requirement decreased significantly in the first nine months of fiscal 2021/22 (April–December 2021) compared with the same period of the previous fiscal year. This decline largely reflected the much smaller cash deficit of national government, while all other levels of general government as well as the non-financial public enterprises and corporations recorded cash surpluses over this period.
National government’s revenue collections far outpaced expenditure growth in the first nine months of fiscal 2021/22. The marked increase in revenue was broad-based among the different components and reflected the recovery in economic activity following the easing of stringent COVID-19 lockdown restrictions as well as the elevated level of most international commodity prices. National government’s cash book deficit almost halved in the first nine months of fiscal 2021/22, and declined significantly to 4.6% of GDP from 10.5% of GDP in the same period of the previous fiscal year. Despite the lower cash book deficit, national government’s gross loan debt increased by 11.4% year on year to R4 271 billion at the end of December 2021, representing 68.8% of GDP.