Economy grows by 1.2% in Q2

The South African economy grew by a better than expected 1.2% in the second quarter, having now grown for four consecutive quarters. The pace of growth in fact accelerated from 1.0% in the first quarter, which was revised lower from 1.1%. Although the economy is 19.3% larger than a year ago, having rebounded off a depressed base, overall economic activity is now only back to 2017 levels.

The largest contributors to growth this quarter were Transport and Communication, Personal Services, and Trade, all of which were supported by progressive economic reopening and the continued normalisation of activity. The third wave, which gathered momentum in June, appears to have had limited impact on second quarter growth which beat expectations. It has however been more difficult than usual to forecast growth, given the recent rebasing by Stats SA.

Looking ahead, we are cautiously optimistic regarding the outlook for growth. There is still some scarring from the crisis last year, but we are emerging on a reasonably good footing, with prospects appearing better than they have in prior years. Although there are still risks, growth is returning, we are seeing promising reform locally, and the fiscus is in slightly better shape.

Against the backdrop of improved growth and attractive valuations, we have upweighted exposure to SA growth asset classes in portfolios, and retain a healthy weighting toward SA government bonds as well, while maintaining meaningful offshore exposure as a diversifier.