SA’s recession bites the dust
With a positive growth figure of 2.2% for the third quarter of 2018, the technical recession is over. We can now switch on the lights (and hopefully keep them on).
The level of growth achieved is roughly in line with market expectations of 1.9% to 2% (quarter-on-quarter). The forex market seemed to approve of the figures, with the rand gaining 10 cents after the data’s release.
If there’s stronger, continued growth, it will serve to improve South Africa’s fiscal situation, which is positive for the local bond market and implies that interest rate hikes will be moderate. The economy was bailed out by the manufacturing sector with a massive 7.5% increase. Agriculture, after two very negative quarters, is also up 6.5%.
These sectors represent the two main contributors to the economy’s strong performance over the past quarter. They are also key to creating more inclusive growth and jobs.
In more good news, South Africa also saw a strong contribution from transport, trade, finance and even government, while the only major detractor was the primary sector, mining down 8.8%.
However, this level of decline in mining is a concern as it points to some of the structural issues the sector is facing. The 2.7% drop in construction and 5.1% decline in gross fixed capital formation is also concerning, pointing to a lack of investment in future capacity. On a more positive note, it was encouraging to see household expenditure rise 1.6% quarter-on-quarter, most of which was spent on semi-durable goods. This points to the fact that consumers aren’t yet down and out.
Combined with the great news that consumers will see a R1.84 cut in the petrol price this month, this is likely to mean increased business and consumer confidence moving into the festive season which, in turn, should further boost the final quarter’s gross domestic product (GDP) figures.
However, while the economy grew by 1.1% year-on-year, as long as economic growth remains below population growth of some 1.6%, the country will continue to see a decline in GDP per capita. The country needs to see GDP growth of 3% as a bare minimum.
With a continued focus on policy reform and implementation, we should hopefully see government’s labours slowly start to bear fruit in the near future.
Ackerman is from Citadel