Ramaphoria GDP set to underwhelm
Investor interest is piqued, but economy not feeling it just yet
● Despite the Ramaphoria effect, GDP figures to be released this week are expected to show that key sectors of the economy hardly expanded in the first quarter of this year.
The sudden improvement in political, consumer and business sentiment after Cyril Ramaphosa was elected president of the ANC and of the country has, however, sparked new interest among investors.
Kevin Cron, a mergers and acquisition lawyer at Norton Rose Fulbright, compared this interest to last year’s negative narrative when the many cross-border deals reflected the exit of investors.
One example of the climate last year was the announcement by Pioneer Foods that a deal with a multinational group to create Africa’s largest consumer goods company had fallen through. It blamed the failed deal on the downgrade of the government’s credit rating to junk by S&P Global Ratings and Fitch Ratings.
Cron said investor interest was “still quite cautious. I think people are waiting to see how the new government settles down. They are waiting for clarity on a lot of policy matters, in particular in the energy space.”
Clarity on mining policy was another area. “I think once the Mining Charter is clarified we could see some restructuring of BEE deals in mining,” he said.
Preliminary research by economists shows that the economy is in better shape than a year ago, when it was still emerging from the effects of a drought. Even so, mining, manufacturing, and wholesale and retail trade sectors are expected to contribute negatively to GDP for the first quarter of this year, with the tertiary sector making only a marginally positive contribution.
Elize Kruger, an economist at NKC African Economics, said mining had dipped into recession (two consecutive quarters of contraction) during the first quarter of this year — for the first time since mid-2015.
“It is clear that uncertainties relating to government policy as well as the impact of the stronger rand exchange rate have taken a toll on the mining sector.” Kruger added that uncertainty over the effects of potentially stricter US import tariffs on steel and aluminium would also have contributed to the dismal state of the sector.
A stronger rand since November had negatively affected manufactured exports. In addition, tax increases and policy uncertainty put a dampener on domestic demand and investment in the sector.
As fuel prices rise owing to the weaker rand, along with a significant increase in international prices, these factors would also weigh negatively on manufacturing.
In March, retail sales improved by 4.8% on an annual basis but were lower if compared to the stronger performance of the fourth quarter of last year. Higher fuel prices, a VAT hike and higher inflation are expected to constrain average household income in coming months.
Kruger forecast annual growth of 2.1% for the first quarter of 2018 and zero compared to the 3.1% growth in the last quarter of 2017.
NKC African Economics said it expected full-year growth of 1.9% for 2018.
Momentum Investments also expects muted growth of about 0.5% for the first quarter of this year.
Momentum said it expected an improvement in real GDP growth of 1.8% this year and 2.1% in 2019.
Sanisha Packirisamy, an economist at Momentum Investments, said data showed that mining stoppages had impeded growth in the sector. Maintenance at oil refineries caused a dip in manufacturing production over the same period.
Growth in the agricultural sector would deliver yields more in line with the average for the sector following a record crop in 2017. She said the government and personal services sectors were likely to be among the leading sectors contributing positively to economic growth.
But the dip in first-quarter growth may be temporary. Global growth was expected to support exports, and business confidence would continue to improve with better investment spend expected after the elections next year.
“Revived consumer confidence, healthy real-wage growth, an improved outlook for jobs, and wealth gains should support consumer spend in the remainder of the year,” said Packirisamy.
The economy expanded by 1.3% last year. South Africa’s GDP per capita, however, remained low compared to a population growth rate of between 1.5% and 1.6%, according to IMF research.
GDP data for the first quarter of 2018 will be published on Tuesday.
I think people are waiting to see how the new government settles down