Ray of hope on growth contraction
The week’s big economics news will be SA’s fourthquarter GDP data release, which will reveal just how badly the economy was pummelled in 2020 by the coronavirus.
The Bloomberg consensus expectation is that real GDP growth slowed about 7.2% for the year as a whole. Dire as that would be, it would still be better than economic growth contracting as much as 8%-9% as initially feared.
Economists are hopeful that the sharp commodity price rally in the latter part of 2020 will have come to SA’s rescue. It delivered not just a boost to mining profitability, but a terms-of-trade boost to the total income of the economy, with knock-on effects on wages, spending and tax revenue.
Even so, the fourth-quarter outcome will be nowhere near the 66.1% quarter-on-quarter seasonally adjusted and annualised (q/q saa) rebound the economy staged in the third quarter, since this was largely due to statistical base effects.
The Bloomberg consensus is for fourth-quarter growth of 5.7% q/q saa. But BNP Paribas economist Jeff Schultz expects the figure to exceed market expectations and recently revised up his forecast for Stats SA’s Tuesday release based on the expected terms-of-trade effect. He now expects a fourthquarter growth rate of 9.3% q/q saa, compared with his previous forecast of just 4.0%. For 2020 as a whole, he expects real GDP to come in at -6.8% year on year compared to -7.1% previously.
Citibank economist Gina Schoeman is less bullish. She expects fourth-quarter growth of 3.9% q/q saa based on the recovery in monthly sales and production data. This includes mining and manufacturing, where output was up almost 40% and 35% q/q saa respectively, and retail sales growth, which rebounded by almost 20%. However, as there is no monthly data for the other parts of GDP, which includes personal services, there is always a wide margin of forecast error attached to the quarterly GDP release.
“I’d say that the risk to our forecast is to the upside given the better-than-expected tax revenue collection during the quarter, but not overly to the upside,” said Schoeman.
The Reserve Bank will issue fourth-quarter current account figures on Thursday. Investec economist Kamilla Kaplan expects the robust 5.9% surplus in the third quarter to have shrunk to just 0.2% of GDP, driven mainly by trade dynamics. In addition, SA’s services account deficit should continue to be underpinned by negligible inbound tourism, she said. The income account deficit should persist on large interest payments to foreigners.
Schultz is expecting a current account surplus of 4.5% of GDP thanks to surging industrial metal prices, which he says are likely to drive the trade surplus to a near-record high, possibly in excess of 8.5% of GDP. “It’s not just export prices that are rising,” explains Schultz. “We [also] expect the import bill to pick up momentum in the first quarter on the back of higher oil and agriculture product prices.”
On the other hand, Schultz also expects a widening of the income account deficit as dividend receipts have dwindled.
Mining and manufacturing production updates for January will be released by Stats SA on Thursday, and are likely to reflect the economy’s weak start to the year.
Investec expects mining production to have contracted by -0.8% year on year after a 0.1% year-on-year lift in December, while manufacturing production likely moderated to 0.9% year on year in January from 1.8% year on year in December.