GROWTH: IS THIS THE TURN­ING POINT?

Financial Mail - - EDITORIALS -

It’s about time SA got some good news. This was de­liv­ered in spades this week, as the economy ex­ited the re­ces­sion with a re­sound­ing bang in the third quar­ter. The silver lin­ing from this week’s an­nounce­ment is that it turns out the re­ces­sion was also milder than pre­vi­ously thought, which pro­vides a spring­board for the economy to ex­ceed the con­sen­sus forecast of 0.8% real GDP growth for the whole year.

It’s some re­prieve af­ter the gloom set in ear­lier this year, when it emerged that growth had con­tracted in the first and sec­ond quar­ters. It slashed con­fi­dence in Pres­i­dent Cyril Ramaphosa’s abil­ity to pi­lot the coun­try’s eco­nomic re­vival.

Since then, the vir­tu­ous cy­cle — where ris­ing busi­ness and in­vestor con­fi­dence was sup­posed to spark fixed in­vest­ment and job cre­ation — has failed to ma­te­ri­alise. In­stead, the nascent op­ti­mism has run aground on con­fi­dence-sap­ping is­sues like land ex­pro­pri­a­tion and the fight­back by the Zuma-aligned camp.

Now it turns out this pes­simism may have been over­done. The bet­ter-than-ex­pected GDP data for the third quar­ter shows that the economy ex­panded by 2.2% quar­ter on quar­ter, com­pared to an ex­pec­ta­tion of 1.6%.

Man­u­fac­tur­ing was the key driver of the re­cov­ery, stag­ing a strong turn­around from a

0.6% con­trac­tion in the sec­ond quar­ter to a 7.5% ex­pan­sion dur­ing the third quar­ter. Agriculture and house­hold spend­ing also held up well.

Read to­gether, this rel­a­tively up­beat data bol­sters the con­sen­sus view that SA is poised for a mod­est re­cov­ery. In­deed, it now seems pos­si­ble that the growth rate could even dou­ble to at least 1.6% in 2019, as op­ti­mists hope.

It’s also good news for the Na­tional Trea­sury, which is bank­ing on an eco­nomic up­swing to avoid hav­ing to hike taxes sig­nif­i­cantly again next year. Hope­fully, this will give the be­lea­guered SA con­sumer more breath­ing space in the months ahead, es­pe­cially if petrol prices con­tinue to fall.

A boost in rev­enue would also im­prove SA’S debt dy­nam­ics, sup­port­ing the coun­try’s credit rat­ing which, at this point, is hang­ing by a thread.

It may seem we’re get­ting ahead of our­selves. Af­ter all, the third-quar­ter fig­ures are flat­tered by com­par­i­son with the weak pre­ced­ing quar­ter, and the pre­lim­i­nary data does sug­gest that con­di­tions re­main tough in the fourth quar­ter.

Eskom, as usual, re­mains an al­ba­tross around SA’S neck. The re­sump­tion of load-shed­ding is, not to put too fine a point on it, an ab­so­lute dis­as­ter, and will surely con­strain growth. There are also wor­ry­ing signs of eb­bing con­fi­dence in the agriculture sec­tor on land ex­pro­pri­a­tion fears.

This is why Busi­ness Unity SA re­acted to the GDP data by urg­ing the so­cial part­ners not to be lulled into a false sense of com­pla­cency by the im­prove­ment. Min­ing, con­struc­tion, elec­tric­ity and water are sec­tors that re­main in dis­tress.

But what hap­pens next in the global economy will also mat­ter a great deal. The hope for SA is that the US economy will come off the boil next year, with­out the Fed hav­ing to hike rates ag­gres­sively. This would cause dol­lar weak­ness, and pro­vide more favourable con­di­tions for emerg­ing mar­kets. This could in turn lead to a firmer rand and a more be­nign do­mes­tic in­fla­tion out­look, re­mov­ing the need for fur­ther rate hikes in SA next year.

Also, the con­sen­sus seems to be that the ANC will win a de­cent ma­jor­ity in the 2019 elec­tions, em­bold­en­ing Ramaphosa to make more far­reach­ing pro-busi­ness pol­icy calls.

There is, ad­mit­tedly, very lit­tle room for er­ror by SA’S pol­i­cy­mak­ers. But if they could just get a few things right — like the spec­trum auc­tion and Eskom’s fi­nances — the economy could start re­ward­ing them with heart­en­ing growth.

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