Manufacturing and mining weigh on GDP

Real GDP growth is expected to have shrunk during the first quarter of 2018 even though the economy is in better shape than it was a year ago, economists said of the data expected to be released this week.

Mining and manufacturing are forecast to contribute negatively to GDP. Mining dipped into a recession for the first time since 2015 as unresolved policy issues over the Mining Charter, mine stoppages and a stronger rand hurt mining fortunes.

Mining and manufacturing combined account for about 20% of the economy.

Elize Kruger, a senior economist at NKC African Economics, said uncertainty over steel and aluminium import tariffs in the US was also a negative for mining. Retail trade sales, a third main contributor to GDP, reflected positive developments in quarter one, including “consumer inflation at a sevenyear low supporting the purchasing power of consumers, a 25 basis-point cut in interest rates at the end of March, moderating household debt levels and improved confidence flowing from recent political developments”.

NKC African Economics forecasts a seasonally adjusted annual growth rate of 0% for the first quarter compared with 3.1% in 2017’s fourth quarter. But on an annual comparison the forecast is for growth of 2.1% during the first quarter of 2018.

GDP data will be published on Tuesday.

Weak first-quarter GDP was not unusual in consumption-driven economies such as SA, where a high base is always expected in the final quarter of the previous year, FNB chief economist Mamello Matikinca said. FNB is forecasting a contraction of about 1% quarter on quarter.

On Tuesday the Standard Bank purchasing managers index (PMI) for May will be published. Last week the Absa May PMI dipped back under the 50 neutral mark, indicating possible contraction in business activity. The South African Chamber of Commerce business confidence index will be released on Wednesday.

Other economic releases include the balance of payments on Tuesday. On Thursday the Reserve Bank publishes the status of gold and foreign exchange reserves for May.