South Africa’s Q3 GDP growth seen rebounding to 1.5% q/q, 1.1%-1.3% y/y - polls

By bne IntelliNews November 24, 2014

South Africa is set to report a higher GDP growth for the third quarter, when the economy started to recover from the strikes that crippled the mining and manufacturing industries during the first seven months of the year. On November 25, at 9:30 GMT, Statistics South Africa will release keenly expected Q3 GDP data, which will also include the results from a GDP rebasing and revising exercise.

A BDlive survey of eight economists showed a median consensus forecast for a seasonally adjusted GDP growth of 1.5% q/q in Q3 following a 0.6% q/q expansion in Q2 and a 0.6% q/q contraction in Q1. Sectors such as finance, business services, general government services, and retail are likely to have driven growth over the period. We should note here the central bank’s recent remark that despite the expected improved growth outcome in Q3, "this is off a low base following prolonged strikes in the mining and manufacturing sectors".

The manufacturing industry, which shrank 2.1% q/q in Q2 and 4.4% q/q in Q1 hit by the spillover effects from the mining strike, is expected to show a continued subdued performance, as it was plagued by an industrial auction in the key metals and engineering sector during most of July. According to recently released data, the Q3 manufacturing production decreased by 0.6% y/y and by 1.3% q/q.

On the other hand, the mining sector, which contracted 9.4% q/q in Q2 and 24.7% q/q in Q1, might show some improvement, as mineral output rose 0.7% q/q in Q3 after a flat performance in Q2.

Analysts at First National Bank (FNB) write that GDP growth could have rebounded to 1.6% q/q in Q3 on the back of improved activity in the mining and trade sectors.

According to the Mail&Guardian, analysts at 4CAST anticipate South Africa’s y/y GDP growth to have accelerated slightly to 1.1% in Q3 from 1.0% in Q2, but to remain below Q1’s 1.6%. A Reuters poll of economists suggests a 1.3% y/y GDP growth in Q3.

However, FNB points out that the re-weighting and rebasing of GDP, which is likely to result in minor revisions to previous GDP numbers, means that the Q3 data is subject to significant forecast risk.

Under the exercise, Statistics SA has changed the reference year from 2005 to 2010 in line with its practice to do this every five years. According to a research note by HSBC SA economist David Faulkner, quoted by BDLive, the data revisions are likely to show the waning importance of manufacturing, mining, and utilities, due to the global financial crisis, local recession, repeated strikes and electricity supply constraints. On the other hand, finance, real estate and business services, and government are likely to boost their contribution to GDP.

Looking beyond the Q3 GDP report, South Africa’s recovery could strengthen further in the current quarter as there have been no labour disruptions. A major risk for growth, however, is related to power supply constraints, as the national utility Eskom has been has been troubled by problematic plant performance and unplanned outages recently.

South Africa's full-year GDP growth is widely expected to remain subdued at around 1.4% this year, plagued by the recent strikes and electricity supply shortages that hurt domestic production and exports, as well as by the fragile global recovery. The rate of GDP expansion might double next year, but will still remain well below the growth potential of around 5%.

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