South African economic activity has rebounded quicker than expected in recent months and the rand is the strongest-performing emerging market currency this year, but the country is racing to roll out Covid-19 vaccines as a third wave looms.

In its Financial Stability Review on Thursday, the South African Reserve Bank said the economy was continuing to rebound from a 2020 recession that saw gross domestic product contract by 7%, its steepest decline for over a century.

“Positive data releases, an uptick in global economic activity, robust international trade, elevated commodity prices and improved mobility” led NKC African Economics to upgrade its first-quarter GDP forecast to a 1.4% quarterly expansion, up from a previous forecast of a 3.3% contraction. NKC analysts now expect GDP to grow by 3.1% in 2021.

The industrial sector, particularly mining and manufacturing, has demonstrated positive growth rates on the back of increased global demand and high commodity prices

“Google Mobility data, which has proven to be a good indicator of economic activity, has improved to its best levels since the coronavirus shock occurred,” NKC senior economist Pieter du Preez highlighted in a note Wednesday.

Third wave risks
The major ratings agencies have all reaffirmed their ratings for South Africa over the past week, but Fitch noted that although the fiscal accounts surprised to the upside on both the fourth quarter of 2020 and first quarter of 2021, the country still faces “substantial risks to debt stabilization.”

S&P also highlighted structural complaints, a lack of economic reforms and a sluggish vaccination drive as hindrances to medium-term growth potential.

Despite the positive surprises thus far, the SARB warned the outlook remains highly dependent on the pace of the vaccine rollout and possible resurgence of the virus, suggesting that the pandemic could last into 2022.

To date, the country has reported a total of over 1.6 million Covid cases, and more than 56,000 deaths, according to data compiled by Johns Hopkins University.

Now, South Africa’s seven-day rolling average of new daily cases is rising, up from its nadir of around 780 in early April to over 3,700 at the end of last week.

Given the scale of the previous hit to economic activity, the government appears reluctant to reimpose stringent virus restrictions, though President Cyril Ramaphosa met with the country’s coronavirus taskforce this week to discuss possible strategies.