GDP worse than expected
Shrinkage is worse than forecasters had expected
WHILE weak growth performance was anticipated for 2016 as a whole, the shrinkage in the South African economy in the fourth quarter was worse than many analysts had forecast.
Raymond Parsons, a professor at the North West University School of Business and Governance, said yesterday: “While a weak growth performance was anticipated for 2016 as a whole, the shrinkage in the South African economy in fourth quarter of 2016 was worse than many analysts in both the public and private sectors were expecting.
“The 2016 growth rate as a whole is the slowest since the 2008 recession. The latest growth figures also put a question mark over the growth forecasts for 2017 and 2018 in the recent 2017/18 Budget and upon which tax revenue estimates are based.”
However, he said, thanks to both more positive global and domestic factors, the economy had entered 2017 with more “green shoots” visible in economic prospects.
“But it is clear that the economic outlook remains vulnerable and challenging. Unemployment in particular recorded its highest level since 2003 in the third quarter of 2016, but improved marginally in the fourth quarter of 2016.
South Africa urgently needs job-rich economic growth which will reduce unemployment and alleviate poverty. The economy requires to be turned around soon to avoid a “lowgrowth trap”.
Africa’s most industrialised economy faces the risk of being downgraded to junk status owing to weak economic growth after it got a reprieve last year.
S&P Global Ratings and Fitch’s ratings agencies are one level above junk status, with Moody’s two notches above.
Poor economic growth has stymied revenue collection, and there is no major turnaround imminent with the National Treasury expecting growth of just 1.3 percent this year, well short of the government’s target of 5 percent annual growth.
The rand briefly trimmed gains against the dollar, and was trading at R12.9675 to the dollar at 11am after touching a session high of R12.93 earlier.
The mining sector fell 11.5 percent in the quarter, while manufacturing was down 3.1 percent.
As well as struggling with a volatile political environment, South Africa has been plagued by falling commodity prices and a chronically high unemployment rate.
On a year-on-year basis, the economy grew at 0.7 percent in the fourth quarter, unchanged from the previous quarter.
After growing 0.4 percent quarter-on-quarter in the three months to September, the economy shrank by 0.3 percent in the quarter to December, the statistics agency said.
The economy grew by 0.3 percent in 2016 versus 1.3 percent in 2015.
“Fiscal consolidation will remain difficult,” Standard Chartered Bank’s Chief Africa Economist Razia Khan said, adding that the economy was not growing enough to make a positive difference to key credit metrics.
“Debt ratios still look troubled. Nothing can be taken for granted.
“South Africa needs greater economic momentum, but it remains unclear what might drive that,” Khan said.
Capital Economics Africa economist John Ashbourne said in a note that the data fell slightly short of what was expected “but the worst is now behind us.”
Sanisha Packirisamy, an economist at MMI savings, said growth averaged a paltry 1.6 percent in the past five years, significantly lower than the long-run average of above 3 percent.
“We are of the view that GDP bottomed in 2016 and should improve to around 1 percent in 2017 and 2 percent in 2018.
Higher expected global GDP growth activity should provide a slightly more supportive backdrop for South Africa’s export activity, while a near 20 percent recovery in global commodity prices over the past twelve months bodes well for a mild uptick in South Africa’s beleaguered mining and manufacturing sectors.