South Africa's economy out of recession

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The South African economy is out of recession as agriculture, finance and mining lift gross domestic product (GDP). The South African economy is out of recession as agriculture, finance and mining lift gross domestic product (GDP).

Stewart Property

The South African economy is out of recession as it expanded 2.5% in the second quarter after contracting by a revised 0.6% in the first quarter, Statistics South Africa said on Tuesday.

Africa’s most industrialised economy entered recession in March after two consecutive quarters of contraction, but growth in agriculture in the three-months to end June supported a recovery.

This is an improvement from the contraction reported for two consecutive quarters. Gross Domestic Product (GDP) declined 0.3% in the fourth quarter of 2016 and 0.6% in the first quarter of 2017.

Second-quarter data shows year-on-year GDP growth was 1.1%, and for the six months growth has been 1.1%. The nominal GDP is estimated at R1.145bn.

The biggest boost came in part from the agriculture, forestry and fishing sector — which increased by 33.6% and contributed 0.7 percentage points to GDP growth.

SA’s agriculture sector is recovering from the effects of a long and severe drought, which has abated in most parts of the country — but continues to ravage the Cape.

Statistician general Pali Lehohla explained that the primary industry contributed “significantly” to the growth numbers, with growth of 10.3%.

Finance, real estate and business services increased by 2.5% after contracting in the first quarter, and contributed 0.5 percentage points.

Mining and quarrying increased by 3.9%, contributing 0.3 percentage points.

Economists had expected GDP growth to rebound to at least 2% in the second quarter of 2017 compared with the first quarter — with some pencilling in as much as 2.9% — but expected desultory growth of about 0.6% compared with the second quarter of 2016.

That figure came in at 1.1%.

There is little optimism that the exit from recession heralds a fundamental turnaround for SA’s beleaguered economy, though — and Lehohla echoed this feeling.

“The growth is not what planners and decision makers would like to see,” he said. “Although it is not negative, it is not to the extent that it is planned for.”

He emphasised that the National Development Plan called for growth of 5.4% annually until 2030.

“The gap is quite significant between 5.4% and 1.1% year on year. There is a gap of 4.5 percentage points of what we intend and what we have.”

Noting that SA’s growth for the year as a whole was forecast at just 0.5%, after 0.3% in 2016, Investec economist Kamilla Kaplan said: “SA’s performance diverges from the synchronised global economic upswing. Global confidence, industrial production and trade indicators all confirm a sustained strengthening of the global cyclical recovery.”

Investec also noted a 4.7% increase on household consumption spending, but said that despite lower interest rates offering consumers some respite, the annual increase in household spending was forecast at just 1%, from 0.8% in 2016.

A 2.6% decline in gross fixed capital formation followed two quarters of expansion.

Some recent economic surveys have brought bad news.

The Absa purchasing managers index (PMI) for the manufacturing sector, released last week, remained below the 50-point cutoff between contraction and expansion, and the forward-looking aspect of that survey fell sharply, going below 50 points for the first time since February 2016.

Standard Bank’s PMI for the whole economy, released on Tuesday, signalled broad stagnation, the bank said. The PMI fell to 49.8 in August, from 50.1 in July.

Mining and manufacturing production and sales figures are due on Thursday.

The South African Chamber of Commerce and Industry (Sacci) releases its August business confidence index on Wednesday. The index eked out a 0.4-point gain in July, following a 1.7-point increase in June.

Investec said on Tuesday: “A low economic growth environment will remain entrenched by the depressed business and consumer confidence levels that have been linked to perceived heightened policy uncertainty and perceptions of weakening governance.”

Rating agencies Fitch, Moody’s and S&P Global have repeatedly highlighted structural impediments to a higher growth trajectory as being among their main concerns in assessing SA’s sovereign creditworthiness.

Meanwhile, Africa’s second biggest economy, Nigeria, also moved out of recession after its ailing economy expanded 0.55 percent year-on-year in the second quarter of the year.


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