SA’s growth factor is still in contraction

But economy expected to expand in 2019

SOUTH Africa’s economy moderated to 1.4 percent quarter-on-quarter in the fourth quarter from 2.6 percent recorded in the previous quarter, with economists expecting better growth ahead.

The rand rallied following the release of the data. The local currency strengthened to a day’s high of R14.12 against the dollar.

The key mining sector showed a contraction in the last three months of 2018.

Statistics South Africa said yesterday that considering full 2018 gross domestic product (GDP), the GDP advanced 0.8 percent below growth of 1.4 percent in 2017.

Growth in the agriculture sector moderated from 13.7 percent to 7.9 percent, while manufacturing slowed to 4.5 percent from 7.5 percent.

The mining sector saw growth decrease 3.8 percent from a decline of 8.9 percent in the previous quarter.

Capital Economics chief emerging markets economist William Jackson said the news from the start of this year, including a collapse in the manufacturing purchasing managers index last month and load-shedding by utility company Eskom, had been downbeat.

“But the fourth-quarter GDP data will provide a reasonably strong carry-over into 2019. More fundamentally, with financial conditions having loosened and inflation set to decline over the coming months, domestic demand should strengthen. All told, we expect the economy to expand by 1.5 percent over the course of 2019,” Jackson said.

FNB economist Matlhodi Matsei said the economy would show better growth this year.

“We maintain that economic growth will likely improve this year, supported by a rebound in private sector fixed investment and steady growth in household consumption expenditure.

“We are forecasting a full-year growth rate of 1.4 percent in 2019,” Matsei said.

National Treasury revised its forecast for economic growth to 1.5 percent in 2019 from 1.7 percent.

The South African Reserve Bank has forecast growth of 1.7 percent this year down from 1.9 percent, while its forecast is unchanged at 2 percent for 2020 and increases to 2.2 percent in 2021.

South Africa’s moribund economy has struggled to grow beyond the 2 percent mark in the past decade.

Business Unity South Africa (Busa) chief executive Tanya Cohen said economic growth was a key prerequisite for South Africa improving its sovereign credit ratings, as well as retaining its only investment-grade rating.

“There are encouraging signs, so Busa remains cautiously optimistic that, with the right policy mix, the alleviation of uncertainty, reforms in state-owned entities, particularly Eskom, together with the political will to implement economic reforms, that South Africa can turn a corner,” Cohen said.

Politics and policy have undermined South Africa’s growth in the past years, with uncertainty in the mining sector particularly damaging.

Economist at Investec Lara Hodes said Cyril Ramaphosa’s presidency had showed evidence of better governance in a number of areas.

“A favourable election outcome in May would further enhance sentiment and this, together with a strengthening of South Africa’s institutions and state structures, should drive a lift in private sector fixed investment,” Hodes said.