Unexpected boost as farming rallies

44% THIRD-QUARTER GROWTH: MANUFACTURING AND MINING ALSO BUOY THE ECONOMY AND GDP

SA’s economy surprised in the third quarter as agriculture continued to recover.

The data was a very positive result for South Africa’s long-suffering economy, says economist John Ashbourne.

South Africa’s economy grew more than expected in the third quarter as the agricultural sector continued to recover from a severe drought while mining and manufacturing also improved, lifting hopes the country may avoid further credit downgrades.

Last month S&P Global Ratings cut Pretoria’s local currency debt to “junk” status while the foreign currency debt was cut deeper into speculative territory, citing a deterioration in the country’s economic outlook and public finances. Moody’s placed South Africa on review for a downgrade.

Africa’s most industrialised economy expanded quarter on quarter at a 2% seasonally-adjusted annual rate in the three months to the end of September after its second-quarter growth was revised to 2.8%. Economists polled by Reuters had expected quarterly growth of 1.5%.

“All in all, today’s data was a very positive result for South Africa’s long-suffering economy. Despite a very weak first quarter, growth will probably exceed consensus expectations in 2017 as a whole,” Capital Economics Africa economist John Ashbourne said in a note.

“More importantly, the increased momentum picked up in the middle of 2017 supports our view that growth will remain strong going into next year.”

Farming led the way with 44.2% growth during the quarter, while major sectors of mining, manufacturing and financial services also showed steady growth. “In agriculture the increase was largely driven by production of field crops as well as products in the horticulture environment,” Statistician General Risenga Maluleke said.

The growth in the second quarter lifted the country from its first recession in nearly a decade. The economy had contracted 0.6% in the first three months of the year, following a 0.3% easing in the last quarter of 2016. In October the Treasury cut SA’s 2017 growth forecast to 0.7% and said annual growth would remain below 2% for the next three years, as policy uncertainty had knocked investor confidence. Political uncertainty is rising before the ANC conference this month to elect a new party leader. Also hurting investor confidence were allegations of corruption in state-owned companies and claims of influence-peddling in government. “Depressed consumer and business confidence in a still extremely fluid and uncertain political environment suggests this is unlikely to change until more clarity emerges post the ANC elective conference,” BNP Paribas SA economist Jeff Schultz said.

“The structural issues the economy is facing are large, and tough decisions will have to be made fast by the new leadership to plug these holes and prevent the economy from slipping over its current fiscal and credit ratings cliff.” – Reuters

Growth will remain strong going into next year.