Johannesburg – The latest GDP figures could be an early Christmas present for disheartened South Africans. But economists warned that while Tuesday’s GDP figures provided some relief in a tough year, South Africa was not out of the woods yet.
Maarten Ackerman, Chief Economist at Citadel, said while the latest figures were definitely good news, he cautioned that growth was still too slow.
South Africa’s economy grew by 2% in the third quarter of 2017, with the agricultural sector giving the economy the biggest boost.
“To date we have seen overall growth closer to 1% for the year. That is definitely more than the current consensus, including the figures from National Treasury and the Reserve Bank,” Ackerman said.
He said the current growth was more than anyone expected. “If you assume that there was zero growth for the last quarter of 2017, the latest figures imply that growth for the whole year is actually likely to be more than 1%.”
But the unexpected good news was still not nearly enough for South Africa, he warned. Taking into account for example South Africa’s growth in population, he explained that to move forward South Africa needed at least 2.5% growth per annum.
Yet the short term green shoots were definitely welcomed in a year that saw South Africa enter and exit a technical recession.
Agriculture
The largest contributor to growth in the third quarter was agriculture, with a 44.2% share, after last quarter’s fantastic 30% growth. But Ackerman warned that this growth spurt came on the back of last year’s devastating drought.
“The growth comes from a low base,” he said. “Agriculture can’t continue on this 44% trajectory.”
Ackerman also highlighted the drop in government expenditure as a positive. He said that the decline was largely due to the government cutting back on spending, more specifically employment.
“This is government committing to more austerity,” he said.
GDP below bullish call
Jason Muscat, FNB Senior Economic Analyst, agreed that the expansion was ahead of consensus forecasts, but added that it was still below economists’ bullish call.
“Growth was almost entirely driven by the agriculture, mining and manufacturing sectors, which expanded by 44.2% q/q, 6.6% and 4.3% respectively, making up 1.9 percentage points of the quarterly figure,” he said.
But activity in the utilities, down by 5.5%, and construction, down 1.1%, remained in the doldrums on the back of weak electricity demand and a dearth of sustained fixed investment.
Ackerman also added that electricity’s poor performance was a worry, because it was an indication of economic activity. “It is an indication that the economy is not firing on all cylinders.”
Muscat added that nevertheless, gross fixed capital formation jumped 4.3% in the quarter, with government, state owned enterprises and the private sector expanding 4.4% , 4.8% and 4.1% respectively.
Surprising drop
He labelled the biggest downside surprise as the 0.4% drop in the trade, catering and accommodation sector, which he and his team expected to expand.
“This was particularly surprising in light of household consumption expenditure having jumped 2.6% in the third quarter,” he said.
This impetus stemmed from a 19.9% jump in durable goods consumption, and a 4.4% increase in semi-durables, he explained.
Financial, real-estate and business services growth softened moderately to 1.2% while the government sector contracted by 0.7% in line with fiscal constraints, he said.
Muscat said that growth for the three quarters of 2017 averaged 1%.
“Given our expectations of a strong showing from retail in the fourth quarter of 2017, we are likely to upwardly revise our full year growth forecast which currently stands at 0.7%.”
Last year the South African economy only managed to grow by 0.3%.
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