GDP beats forecasts

South Africa’s economy grew more than expected at the end of last year as agriculture and trade recovered, boosting its chances of avoiding a potentially debilitating credit ratings downgrade.

The easing of the drought boosted the above-forecast rise in GDP in the fourth quarter. However, economists said Cyril Ramaphosa’s election as ANC leader late in the quarter, and as president last month, has raised expectations that SA will make economic reforms and possibly keep its last investment grade rating.

Statistics SA said the economy grew 3.1% in October-December, the highest rate since the second quarter of 2016, after expanding by a revised 2.3% in the third quarter. The growth beat market expectations of a quarter-on-quarter GDP expansion of 1.8%, according to a Reuters poll.

Finance Minister Nhlanhla Nene said on Monday growth forecasts were likely to be raised in October’s medium-term budget, as the government completes reforms to boost growth and stabilise ailing state companies.

Moody’s, the only major ratings agency that still ranks SA debt as investment grade, is due to publish its rating decision this month after placing the country on review for a downgrade. S&P Global Ratings and Fitch already rate SA debt as “junk”.

The agriculture industry had the highest growth at 37.5% quarter-on-quarter, although the expansion was slower than in July-September, when the sector expanded 41.1%. In the fourth quarter, trade expanded 4.8% after shrinking 0.1% in the previous quarter, while manufacturing grew 4.3%, up from 3.7%.

GDP rose 1.5% on an unadjusted year-on-year basis in the fourth quarter. In the third quarter it was 1.3%. The economy grew by 1.3% in 2017 (2016: revised 0.6%).

“Ratings agencies are much more likely to focus on structural reforms, and the higher growth rate that now looks possible over the coming years,” Standard Chartered Bank’s chief Africa economist Razia Khan said. “While not downplaying the economy’s still considerable challenges, this should create a sound base for future improvements in South Africa’s rating.”

Nedbank’s Group Economic Unit anticipates moderately faster growth in consumer spending and a more pronounced recovery in fixed investment.

“These adjustments push our GDP growth forecast up to 1.6% in 2018 (previously 1.4%), 1.8% in 2019 (1.7%) and 2.4% in 2020 (2.1%), but we are likely to revise them higher on the back of the positive momentum.”