Compiled by: RA Downing, Econdow CC, In association with CMV Group & Perseus VC1
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012 991 4400 | 028 316 3975 | 036 488 1524 | 058 481 4175 | 036 448 2554
Branches: Pretoria, Hermanus, Drakensberg, Senekal, Bergville
info@perseusvcc.co.za perseusvcc.co.za
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SARS REF. – VCC 0113
Economic Developments in the 2nd Quarter 2021
- The economy remained in recession in the 2nd quarter 2021 and burdened by junk investment status.
- Although economic activity recovered from the disastrous 2nd quarter of 2020, the recovery appears to have lost momentum after the looting and destruction in July 2021 in certain parts of South Africa.
- In the 2nd quarter of 2021, the GDP was still 1.4% below the GDP of 1st quarter 2020. If agricultural output, that increased by 7%, are included, GDP was still lower than in 1st quarter 2020.
- Local and foreign investors were shocked by the socio-political mayhem that occurred in July 2021. Even before the disturbances fixed investment was inadequate to support economic growth and employment. It probably worsened in the 3rd quarter 2021.
- Business confidence dropped notably from May 2021 to September 2021 as the SACCI BCI decline from a high of 97 to 91. Although still better than May 2020, economic activity will be negatively affected.
- Serious structural public financial difficulties remain in the public sector and worsen – don’t be misled by the temporary tax windfall.
- Social and political instability will continue to dent economic prospects given unresolved and staggering unemployment. Expect increase political upheaval.
- The rand will remain volatile as non-residents extracts capital.
- Substantial surplus on the foreign trade account (merchandise goods) should be treated as temporary with the service account experiencing continuous deficits.
- Credit availability to business by the banking sector remains tight.
- The business climate for the business environment of SMMEs picked up but remains uneasy.
- Consumer inflation is trending upward to nearly 5% in August 2021 compared to a low 2.1% in May 2020. Producer inflation rose from 0.3% in May 2020 to 7.2% in August 2021.
- Interest on the verge of increasing as inflation rises further. Undisciplined and militant workforce will contribute to fuel higher inflation.
Challenges Ahead
- South Africa’s growth prospects were revised upward to some 3% for 2021 and 1.5% in 2022, but it could dwindle further unless investor confidence is restored.
- Unless political stability, and law and order are restored, South Africa’s economy will deteriorate further. Weak leadership is a main drawback.
- Investor confidence will take time to restore but remains essential.
- South Africa benefited from improved world trade volumes in 2021. This could enhance export led growth in emerging markets which is accompanied by higher commodity prices. Not good news for crude oil importers like South Africa.
- Energy supply shortages are a drag on investment and output.
- Fiscal dilemma, government debt, and junk investment status by credit rating agencies could worsen.
- The rand to remain volatile and under pressure in 2021.
- Monetary policy anticipated to become tighter as inflation tend to rise.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
