South Africa skips recession but misses forecasts, bracing for continued sluggish economy

By bne IntelliNews November 24, 2015

South Africa avoided narrowly a technical recession in the third quarter as a 0.7% q/q* GDP expansion reversed a 1.3% q/q contraction in the preceding three months, but growth was lower than expected and reinforced concerns that the sluggish economy is here to stay. Analysts polled by Reuters had predicted a 1.1% growth, while a Business Day poll suggested a 1.0% expansion.

On an unadjusted y/y basis, the country’s real gross domestic product at market prices increased by 1.0% in Q3, the lowest reading since the 2009 recession, after a 1.3% growth in Q2, data released by Statistics South Africa on November 24 showed. Markets had expected growth to be maintained at 1.3% last quarter.

According to Charlie Robertson, global chief economist at Renaissance Capital, the key reason for the lacklustre growth must have been the weak rand, which hit demand and investment, he said in Twitter.

His colleague Mohammed Nalla, head of strategic research at Nedbank, underscored that the economy is “very weak”, as a growth of 1% not enough for an emerging market that needs to address employment challenges.

“I personally do not think that the risk of a recession has left us and may raise its ugly head in 2016 again,” Nalla tweeted.

Manufacturing shines

South Africa’s Q3 q/q growth was driven mainly by a somewhat surprising robust recovery of the manufacturing industry, which expanded 6.2% after shrinking 6.3% q/q in Q2 and 2.4% q/q in Q1. On a y/y basis, manufacturing grew 1.4% in Q3, the best reading in six quarters, reversing a 0.6% decline in Q2.

The rebound likely reflects improved electricity supply and the rand depreciation, which made locally manufactured goods cheaper to export. Recent investments in the vehicle manufacturing industry have boosted capacity, with the country’s vehicle exports projected to grow more than 20% this year to a record high number of about 335,000 units.

However, South Africa’s Purchasing Managers’ Index (PMI) for the manufacturing industry fell to a six-month low of 48.1 in October, suggesting subdued demand both at home and abroad and muted growth prospects.

Manufacturing contributed 0.8pp to the overall 0.7% q/q GDP growth in Q3, which was largely offset by expected further contractions in mining and agriculture. The q/q drop in mining deepened to 9.8% from 6.4%, while that in agriculture softened to 12.6% from 19.7%. On a y/y basis, mining edged up 1.4% from a low base given the large platinum strike last year, whereas agriculture shrank 16.2%. The prospects for the two sectors remain downbeat amid rising input costs, persisting soft commodity prices and worsening drought conditions.

On a brighter note, the trade and tourism sector** rebounded to a 2.5% q/q growth from a 0.6% q/q decline in Q2 partly due to solid public sector wage increases, and growth in the finance, real estate and business services industry strengthened to 2.8% from 2.6%. The y/y growth rate edged up by 0.1pp in both sectors to 1.2% and 3.1%, respectively.

The nominal GDP at market prices was ZAR1.007trn ($72bn) in Q3, by ZAR14bn more than in Q2. The largest industries, as measured by their nominal value added, were finance, real estate and business services with a share of 20.7%, general government services with 17.6%, trade and tourism with 14.6%, and manufacturing with 13.3%.

South Africa’s GDP growth is expected to remain sluggish at around 1.4% this year and 1.5% next year.

*on a seasonally adjusted and annualised basis

**wholesale, retail, and motor trade; catering and accommodation

Related Articles

Electric bus maker BasiGo secures $3mn from CFAO to scale up Kenya, Rwanda production

Electric bus company BasiGo has secured $3mn worth of equity funding from CFAO Group to scale up production in Kenya and Rwanda. With operations in over 40 African countries, ... more

Russia’s nuclear firm Rosatom to collaborate with South Africa on floating NPP project

Russia’s state nuclear energy corporation Rosatom is developing a floating nuclear power plant (NPP) project for South Africa, Interfax news agency reports. Ryan ... more

Nigeria files charges against Binance as regional executive goes on the run

Nigeria has escalated its confrontation with cryptocurrency giant Binance by filing tax evasion charges against the platform and seeking an international arrest warrant for Nadeem Anjarwalla, ... more

Dismiss