Economic growth beats low hopes

● Outlook brighter as 0.8% for 2018 exceeds expectations – but still far off required mark

SA emerged out of 2018 with economic growth of 0.8% – which is slightly higher than expectations.

The Bloomberg consensus was for growth of 0.6%, while both the National Treasury and Reserve Bank expected 0.7%.

This is higher than the tepid growth of 0.4% in 2016 but almost half the 1.4% of 2017.

The growth has been driven by activity in the finance, real estate and business services sector, which was up by 1.8%, and general government services, which was up by 1.3%.

In the fourth quarter of 2018, GDP grew by 1.4%, bolstered by the manufacturing sector, which grew 4.5%; the finance, real estate and business services sector, which grew by 2.7%; and the transport, storage and communications sector, which grew by 7.7%.

Mining, which fell by 3.8%, weighed on the overall figure.

Compared with the same period the year before, GDP grew by 1.1%.

Expenditure on GDP grew by 0.7% overall in 2018 and by 1.6% in the fourth quarter.

Growth was revised for the three previous quarters.

In the first quarter, it was revised down from -2.6% to -2.7%, and in the second quarter from -0.4% to -0.5%.

In the third quarter, it was revised up from 2.2% to 2.6%.

The economy struggled to gain momentum in 2018 despite political changes after President Cyril Ramaphosa’s election.

SA moved into recession in the first half of 2018, for the first time since the global financial crisis, which saw economists and institutions alike revise their growth forecasts down, which weighed heavily on growth for the year.

Annual growth has failed to breach the 2% mark since 2013.

Analysts say SA will need sustained growth of at least 5%, in line with the National Development Plan, to make a meaningful dent in the unemployment rate of nearly 30%.

Growth is expected to lift in 2019 but forecasts indicate that GDP will still be below 2%.

The Treasury and the Reserve Bank expect the economy to expand by 1.5% and 1.7%, respectively, in 2019.

“The news from the start of this year, including a collapse in the manufacturing [purchasing managers index] last month, and load-shedding by Eskom have been downbeat,” Capital Economics economist William Jackson said.

Growth prospects have also been hurt by political uncertainty and slowing global economic momentum.

However, Jackson said the data from the fourth quarter will probably maintain its momentum into 2019.

“More positively, there is a clear intention on the part of government to lift growth and employment over the next few years,” Stanlib chief economist Kevin Lings said.

Lings cited the commitment to restructure and support Eskom, and moves to resolve the financial difficulties in other key state-owned entities, as well as a tough 2019 budget.

“The success of this year’s budget will be determined by the government’s ability to make real progress on implementing these reforms over the next 12 months,” Lings said.

“This is also going to be critical if the government wants to maintain its investment grade credit rating from Moody’s [Investors Service].” –