North-West University: GDP figures show economic production is virtually back to pre-pandemic levels

It is very encouraging that the latest much-better-than-expected gross domestic product (GDP) figures for the first quarter of 2022 show a further strong recovery in the economy following the economic setbacks of the Covid-19 lockdowns and the widespread civil unrest of July 2021.

Prof Raymond Parsons, economist from the Business School of the North-West University (NWU), says the figures that were announced on 7 June 2022 reinforce the 4,9% GDP growth recorded for 2021 as a whole, after the negative -6,4% growth experienced in the previous year.

“Economic production is now virtually back to pre-pandemic levels, and has undoubtedly also been supported by the continued global commodity boom.”

He says what is particularly reassuring is the rise of 3,6% in gross fixed-capital investment (GFCI), which is a major accelerator of growth and employment. GFCI in 2021 was still at the low ratio of only 13% to GDP, which is about half of what is required for much higher economic growth and job creation if the goals of the Economic Reconstruction and Recovery Plan are to be met.

“The latest improvement in fixed-capital spending will therefore be another step towards strengthening that key economic ratio. The latest GDP figures will probably require analysts to better their previous forecasts of 1,6% to 1,8% for GDP growth in 2022 as a whole.”

Prof Parsons points out that caution is still needed as to how far to go. Subsequent negative developments in the second quarter nonetheless may now have created new downside risks to the 2022 growth outlook. These factors include the global economic fallout from a protracted Russia-Ukraine war, the economic impact of devastating floods in KZN, persistent load-shedding and heavier borrowing costs for business and consumers as the SARB’s interest-rate-raising cycle continues.

“Given the global and domestic uncertainties that still prevail around the economic outlook for 2022, it therefore remains essential that these emerging growth positives should not be wasted, but be continually built on by urgently implementing the right structural reform policies and projects to promote the sustained economic growth needed.”