Economists optimistic SA is on recovery path

• Growth was 0.3% for 2016, lower than the Treasury’s forecast of 0.5% and the Reserve Bank’s forecast of 0.4%

SA’s economy shrank in the fourth quarter, making 2016 the worst year since the 2009 recession, but economists are optimistic that the worst is behind us.

Economic growth was 0.3% for 2016, lower than the Treasury’s forecast of 0.5% and the South African Reserve Bank’s forecast of 0.4%.

According to Statistics SA, GDP contracted 0.3% quarter on quarter in the fourth quarter of 2016. SA avoided a recession only on technical grounds — there was a fall in output in the first quarter and fourth quarter, but not in any two consecutive quarters.

Capital Economics economist John Ashbourne said: “While today’s figures make for gloomy reading, we believe that the underlying trend supports our view that growth will pick up in 2017.

“The key forces that have dragged on growth eased at the end of the year [2016]. The worst is now behind us. We expect that growth will accelerate to 2% in 2017, which is significantly above consensus.”

While output in the agricultural sector contracted in the first two quarters, it levelled off in the second half with the dissipation of the drought. Output is expected to rebound in 2017 and provide a significant boost to headline GDP.

The rand traded slightly stronger on the news that the GDP growth number for 2016 had come in marginally worse than expected.

At midday, the rand was at R12.9773 to the dollar, from R13.0137, trading little changed at R12.9719 at the JSE’s close.

The local currency was at R15.8066 against the pound, from R15.929.

Analysts said the rand did not show much reaction to the GDP data as they did not contain any major surprises and were broadly as expected.

Econometrix director Azar Jammine said: “This is the bottom of the economic cycle. We should see an improvement coming off seven years of a downturn.”

Investment spending contracted for four consecutive quarters between the fourth

quarter in 2015 and the third quarter in 2016 but recovered last quarter, rising 1.7%. Lower investment spending from fiscal tightening and weak business confidence was a huge contributor to the slow growth in 2016.

BNP Paribas economist Jeffrey Schultz said: “Political risk aside, we think that the South African economy should be able to benefit [from] improving terms of trade; an agriculture sector which looks poised for a rebound; sharply lower inflation in the second half of the year; and a lower current account deficit, thanks to a greater contribution to growth from net trade. All of these factors underpin our forecast for GDP growth to improve to 1.3% in 2017.

“Whether it’s 0.3% or 0.5% either way 2016’s growth is a pretty shocking number but it’s important to look at the projected growth in 2017 and 2018.”

Old Mutual Investment Group economist Johann Els said: “A tight fiscal policy following a well-received budget and fading economic shocks, such as the commodity price slump and drought and food inflation, are all contributing to the case for an South African growth recovery this year.

“We expect growth to rise to about 1.3% in 2017, with a possible upside surprise if emerging markets remain in favour and confidence improves.” /With