The Real Economy Bulletin - First Quarter 2023

Main Bulletin: The Real Economy Bulletin - First Quarter 2023

In this edition

GDP growth: The economy grew by 0.4% in the first quarter of 2023, reversing the decline in the previous quarter. Still, the growth is slow, so the economy grew only 0.2% in the year to March 2023. Lower export prices and pro-cyclical fiscal and monetary stances were compounded by loadshedding. National electricity generation is now around 25% below 2007 levels. That said, Eskom increased generation by 7% in March and April, and auto sales were up by 29% for the quarter. Read more.

Employment: Total employment remains lower than in the first quarter of 2020, before the pandemic, mostly because of extraordinary shrinkage in domestic work as well as a very slow recovery in formal employment, primarily for skilled production workers. That said, in the year to the first quarter of 2023, formal employment grew faster than informal employment for the first time since the pandemic lockdown in 2020. The loss of domestic work means that women have suffered disproportionately from the loss of jobs during the pandemic. In the year to the first quarter of 2023, within manufacturing, metals, transport equipment and clothing saw significant employment gains, but food processing faced job losses. Read more.

International trade: In the first quarter of 2023, South Africa saw its first trade deficit since the pandemic, as falling commodity prices, especially for coal, and economic growth gradually ate away at historically high recent surpluses. The shift to a deficit mostly reflected falling export revenues as global mining prices dropped while imports rose, in large part to develop new electricity capacity. Read more.

Investment and profitability: Investment increased by 1.4% in the first quarter of 2023, driven primarily by an extraordinary 7% jump in government investment for the quarter. The private sector was far more cautious, with investment climbing just 0.2% for the quarter, compared to 1.8% in the fourth quarter of 2022. The investment rate stabilised at 14.8% of the GDP, down from a high of 22% in 2008 and unchanged from the previous quarter. Read more.

Foreign direct investment projects: The TIPS Foreign Direct Investment Tracker monitors FDI projects quarterly, using published investment information.  Seventeen projects. Eleven projects were captured at different stages of development in the first quarter of 2023, with most as greenfield investments. The published investment value for the quarter amounted to about R47.8 billion from three projects across manufacturing, utilities, services, transport, mining and agriculture. There were further changes to the status of 18 projects previously captured in the Tracker. Read more.

Briefing Note:  Why inflation targeting does not work in a highly unequal country - by Saul Levin. The inflation targeting approach by the South African Reserve Bank and its recent increase of 0.5% has seen interest rates more than double when compared to the first quarter of 2022. The interest rate is now 8.25% and it was at 4% in March 2022. In a highly unequal country these increases disproportionately affect two groups: homeowners who are in the top 10% of income earners who owe over R1 trillion in home loans, and the working poor who often get by on payroll based loans. Read the Briefing Note online: Why inflation targeting does not work in a highly unequal country.

Briefing Note: Carbon Border Adjustment Mechanism (CBAM) - A challenge and an opportunity for developing countries - by Seutame Maimele. The European Union’s Carbon Border Adjustment Mechanism, a border tax on embedded green-house gas emissions, was finalised in May 2023 and will begin implementation in October. The CBAM aims to equalise the price of carbon between EU products and imports by ensuring importers face similar carbon costs as EU manufacturers. Read the Briefing Note online: CBAM - A challenge and an opportunity for developing countries.