HILARY JOFFE: Figures look good but on closer inspection, not so rosy

It was a week of bad-mood-busting economic news, with stronger than expected first-quarter GDP figures, a big jump in business confidence, a current account surplus and, to top it all, President Cyril Ramaphosa's electricity surprise.

But a closer look at the first-quarter figures puts some question marks on how strong and how sustainable is SA's economic recovery. And while this year's growth rate will be way higher than we're used to, there are significant risks to the rosy picture.

The market had expected the economy to grow at an annualised 2.5% during the first quarter of this year. In the event, the gross domestic product figures released show it grew at 4.6%. But the gap between expectations and outcome was almost entirely due to a revision by Statistics SA of the numbers for the previous quarter, which now show the economy grew at 5.8% in the fourth quarter of last year, not the 6.3% previously announced.

The revision was because of an update by the minerals & energy department of the mining data it supplies to Stats SA. A lower fourth quarter of 2020 meant a higher first quarter of 2021, so the economists were wrong on the quarter-on-quarter number, but still mostly right on the year-on-year number, which shows that if the first quarter of this year is compared with the first quarter of last year, the economy is still 3.2% smaller. Damage done by the pandemic was so deep that SA's real economic output is still where it was five years ago. Recent jobs numbers suggest employment will still take years to recover.

Mining and finance were the key drivers of the strong first-quarter growth and the commodities boom boost to mining exports was also the big driver of the record 5% surplus on the current account of the balance of payments. But the cause for concern is that the mining boost has been more about higher prices than about higher production. The GDP figures, which unlike the balance of payments measure volumes rather than value, show net exports were a negative, with exports growing more slowly than imports.

If and when the commodity price boom tails off, SA will be vulnerable.

The other big cause for concern in the GDP figures was that investment spending was down 2.6%, with private sector investment contracting by almost 18%. Without higher investment, the economy has no chance of growing on any sustainable long-term basis.

In the short term, though, the indicators are good. Business confidence shot the lights out for the second quarter. For the first time since long before the pandemic the optimists outweigh the pessimists. We are now getting monthly figures for April, which compared with last April's hard lockdown are shoot-the-lights-out stuff. Mining production was up 117% year on year in April, Stats SA reported this week. Signs are that second-quarter GDP will remain robust.

With the stronger than expected start in the first quarter, the growth rate for the whole year is likely to end up higher than economists had predicted - at least 4% and possibly closer to 5%.

Some technical statistical changes could also boost the trajectory. In August, Stats SA is due to publish the outcome of the rebasing and re-benchmarking exercise it conducts every five years to take account of changes in the structure of the economy and new data sets.

These exercises almost always result in upward revisions to the absolute level of GDP and sometimes also to the growth rate.

Though August's publication will only run to the end of last year, the update will impact future GDP calculations. Worth noting, too, is that Stats SA is about to end its practice of annualising the quarterly figures, where it takes the quarter-to-quarter change and extrapolates to the full year, exaggerating the move. From next quarter, we will just see the headline quarterly number, in line with international practice.

But as much as there are good signs of recovery for the remainder of this year, there are also looming risks. Covid is one. With the vaccine rollout slowed by the halt US regulators put on our J&J doses, and the number of daily new cases jumping to more than 9,000, the "fear factor" could constrain economic recovery in the next quarter or two, even without new restrictions.

And then there are the stage 4 power cuts. Eskom had said the risk of power cuts would reduce by September this year because of progress on its maintenance. There sure isn't much sign of that: the more maintenance it does, the more its machines seem to fall over. Ramaphosa's announcement opening the way for companies to generate their own electricity at scale without a licence has the potential to bring multiple gigawatts onto the grid, but that's a 12-18 month timeline at best, not an immediate quick fix.

We will have to see in coming months how far the pandemic and power risks offset this year's rosy start.

• Joffe is contributing editor.