Agriculture rebound benefits GDP
A recovery in agriculture gave GDP a surprise boost in the third quarter and has led to economists revising upwards their forecasts for the year.
Mining and manufacturing also buoyed GDP in the third quarter. The third-quarter positive growth outcome bodes well for SA, which has been placed on watch for a sovereign credit rating downgrade by Moody’s Investors Service.
GDP increased more than expected, by 2% quarter on quarter in the third quarter of 2017. For the second successive quarter, growth was supported by a rebound in the primary sector and has re-energised hopes that SA may see stronger growth for the year.
In November, SA received a reprieve from Moody’s, which remained the most generous of the big three credit ratings agencies in being the only one to still rate SA’s foreign and local currency government bonds as investment grade. But it flagged low growth as a risk factor.
“The decision to place the rating on review for downgrade was prompted by a series of recent developments, which suggest that SA’s economic and fiscal challenges are more pronounced than Moody’s had previously assumed. Growth prospects are weaker and material budgetary revenue shortfalls have emerged alongside increased spending pressures,” Moody’s said on Friday.
In 2016, SA was hit by a ravaging drought and growth dipped to 0.3% for the year.
“Overall, the sector could remain on a positive growth path for some time as SA’s farmers intend to increase the area planted in the 2017-18 production season by 43,400ha year on year to 4.03-million hectares.
“This is driven by favourable weather outlooks and price competitiveness of some commodities,” Agbiz head of research Wandile Sihlobo said.
While growth in the third quarter was weaker than in the second quarter (growth was revised up from 2.5% to 2.8% quarter on quarter), it is the first time since 2015 that the economy has had growth of more than 1% quarter on quarter for two consecutive quarters.
Capital Economics economist John Ashbourne said growth in SA’s economy remained strong in the third quarter, suggesting the country’s recovery was gaining traction.
“This supports our view that growth will surprise to the upside in 2018.”
Despite revisions downwards by the IMF, World Bank, the Treasury and the Reserve Bank, economists say the numbers support hopes of slightly higher growth. Many economists and institutions revised down their growth forecasts following weak economic growth in the first quarter, which placed SA in a recession.
The Reserve Bank and IMF forecast GDP growth of 0.7% year on year in 2017, while the World Bank projects growth of 0.6% year on year. In the medium-term budget policy statement in October, the Treasury revised its forecast down to 0.7% from a modest 1.3%.
”The primary sector’s rebound, particularly agriculture, has been fundamental to the better-than-expected GDP performance of late.
“Nevertheless, the slightly better-than-expected performance of the primary sector alongside a consumer that looks to be on a slightly firmer footing than we initially expected [and upward revisions to Statistics SA’s historical GDP figures] has meant that the South African economy will probably be able to grow around 1% in 2017 from our previous 0.8% forecast,” BNP Paribas economist Jeff Schultz said.
FNB senior economic analyst Jason Muscat said: “Growth for the three quarters of 2017 is averaging 1% and given our expectations of a strong showing from retail in the fourth quarter of 2017, we are likely to upwardly revise our full-year growth forecast, which currently stands at 0.7%.”