The latest official demand-side GDP data confirm that South Africa's modest rebound in 2010 (from recession in 2009) was consumption-led and that investment remained weak. Figures for 2009 and the first three quarters of 2010 have been revised upwards in the case of household spending and downwards for investment. For 2009, private consumption fell by 2% (not 3.1%) while investment declined by 2.2% (rather than growing by 2.3%). The overall contraction in 2009 was slightly shallower than feared, with real GDP shrinking by 1.7% rather than 1.8%, while growth recovered to a modest 2.5% in the first three quarters of 2010. However, the weak investment picture remains a concern.

Figures for 2010 show that household consumption (the largest proportion of GDP) rose by 5.8% year on year in the third quarter-the strongest performance since before the recession-and was up by 4.3% in the first three quarters. Consumers are benefiting from looser money and lower interest rates, and from real wage growth in an environment of low inflation. Household debts are still high but have become more manageable, although job creation remains weak. Separate, narrower data for retail sales growth show that real consumer spending remained solid at the start of the fourth quarter, rising by 6.1% year on year in October, up from a strike-affected 4.8% in August and the best performance since the World Cup peak in June and July.

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Gross fixed capital formation (GFCF), by contrast, continued to decline in the third quarter, by 1.2% year on year, marking a fifth consecutive quarter of contraction, although the pace of decline has slowed. For the first three quarters of 2010, GFCF dipped by 5.1% year on year, including a 6.4% fall in private investment (which accounts for 60% of the total) and a 12.8% slide in central government investment, although parastatal investment bucked the trend, rising by 4.4%. Private investment will remain weak until output in key sectors such as mining and manufacturing reaches pre-recession peaks and spare capacity dissipates. Notably, South Africa's inventory rundown now appears to be over: stocks entered positive territory in the third quarter for the first time in three years. For the year, the overall economy is estimated to have recovered by 2.8%. The recovery in household consumption and the slowing decline in investment indicate that the recovery is gaining traction, but South Africa's consumers and businesses will continue to remain cautious.