Economists cautious over 2017 growth, but this year should be slightly better

● Former finance minister Malusi Gigaba’s parting line, “We gonna be right, we gonna be alright”, may be coming to fruition, but the pace of economic growth could fall short if US interest rates rise and political change in South Africa stalls.

The National Treasury in its February budget indicated that GDP growth for 2017 would come in at 1% — higher than the 0.7% forecast at the time of the medium-term budget policy statement in October last year.

But GDP growth is unlikely to better the 2.5% registered in the second quarter of 2017. Rather, it could range between 2% and 2.5%, according to some expectations. In the first quarter of last year GDP contracted -0.7%, while in the third quarter it was 2%.

John Ashbourne, Africa economist at Capital Economics, said this week that manufacturing and retail sales data during the fourth quarter had been quite strong and could boost the GDP rate for the period.

He said the full-year rate, which Stats SA will release on Tuesday along with fourthquarter figures, could come in at 1%.

Christmas shopping boost

Retailers ended the year on a high note, with December trade data showing a 5.3% increase in sales over the same period in 2016.

Ashbourne said mining was slightly weaker during the last quarter and could dampen the number, but the performance of manufacturing and retail outweighed this.

Dennis Dykes, chief economist at Nedbank, expected a fourth-quarter growth rate of 2%, which would result in GDP for 2017 coming in at 0.9%. Dykes agreed that manufacturing had picked up and said there had been an improvement in the banking sector. He expected agriculture to lag.

Dykes said growth in the fourth quarter would have to have been 2.7% for the fullyear figure to reach 1%, unless previous numbers were revised.

He said the expectation for 2018 was 1.6%, but noted: “A huge amount of damage has been done to the economy already and it will be difficult to pull things together.”

Citi South Africa chief economist Gina Schoeman expected 2017 GDP to be about 1%, which was a big improvement on the 0.3% in 2016 but still way below what South Africa had the potential to achieve.

“Our forecast for 2018 is 1.5% and for 2019 it’s 1.9%. Although a pick-up from recent years, it is worrying that this is still predominantly cyclically led while the economy lacks structural reform,” she said.

Ashbourne said a growth rate of 2% in 2018 was possible, but the Treasury only expected to achieve this in 2020. He said growth would pick up in 2018 because the election of Cyril Ramaphosa as president had been a huge boost to confidence.

Ashbourne said there had been positive momentum in economic growth since the middle of last year as inflation fell and the negative impact that the agriculture sector had in 2016 faded.

“Even forgetting what has happened in politics the momentum was very positive going into this year,” he said.

“If nothing goes wrong the direction of travel should be an improvement, and then the Ramaphosa election added to that and to confidence. Hopefully it will increase business investment, which has been held back for some time.”

Weakest brick in the wall

Ashbourne said South Africa, despite the uptick in GDP, would still be the weakest of the Brics nations.

However, it would not be far behind Russia and Brazil, which were expected to grow at 2.5% and 2.8% in 2018.

He said investors were willing to take risks in countries they thought were moving in the right direction. “South Africa is on those lists, rightly or wrongly, as it still is very early days.”

Ashbourne said South Africa was in a similar position to the one Argentina faced just over two years ago when president Cristina Fernández de Kirchner left office. Fernández faces criminal charges, including corruption, money laundering and financial mismanagement while in office.

Ashbourne said there was a sense that “things are turning around” in Argentina, where a new president had signalled a new direction.

As in South Africa the economy faced structural problems, but there was now more optimism about the outlook for both countries, he said.

One problem on the horizon for South Africa that emerged this week was the indication by Jerome Powell, chair of the US Federal Reserve, that the pace of interest rate increases will quicken in the US as the economy accelerates.

This could scupper hopes for an interest rate cut, and a concomitant boost to economic growth, by the South African Reserve Bank this year.

The Ramaphosa election added to confidence

John Ashbourne Capital Economics