28 May, 2013 13:58

Scary GDP Number

GDP grew by just 0.9% in the first quarter of this year – a scary number. Most experts believe that growth needs to be in the order of 6% for significant job growth to occur. At these levels we are more likely to be destroying jobs.

Expert views:

Goolam Ballim from Standard Bank

South Africa continues to cement its relative underperformance among emerging economies. The confluence of tepid external demand, fragile local consumer fundamentals and constrained policy stimulus has contributed to marked, sustained momentum loss in South Africa. One notable consequence of the generalised economic weakness will be further restlessness among workers, which in itself is retarding of economic activity.

Loane Sharp from Adcorp

According to official GDP figures released today, economic activity in South Africa stalled in the first quarter of 2013. This presents a bleak picture for the labour market. According to Adcorp’s modelling, the economy needs to grow between 4% and 5% per annum just to absorb all the new entrants entering the labour market from the secondary and tertiary education sectors in search of work each year. The economy needs to grow 8%-9% to make substantial inroads into the country’s formal sector unemployment problem. However, at the same time, there are good reasons to believe that Statistics SA is not on top of its game in terms of recording the full scope and extent of economic activity. Based on cash in use in the informal economy, GDP is, in fact, 15.7% – bigger than Statistics SA’s figures suggest. Based on electricity usage patterns, the economy is 10.7% larger than the official figures suggest. There are thus two realities in the labour market: a troubled and shrinking formal sector, where employment (at least in the private sector) is falling; and a vibrant and growing informal sector, where employment (broadly defined to include all available means of obtaining a regular income) is rising sharply. Unless labour laws and income taxes (as the primary causes of growth of the informal sector) are revisited, the economy and labour market will continue to be subject to powerful forces of informalisation.

Shadow Minister of Finance Tim Harris

GDP growth statistics released today by Stats SA reveal that South Africa’s economic growth has collapsed to 0.9% in the first quarter of 2013. This means we are completely out-of-step with growth rates in developing economies like Thailand (5,4%), Indonesia (6%) and Chile (4,1%). In fact, we are now growing slower than several embattled first world economies like the United States (1,8%) and Canada (1,1%). This is the strongest indication yet that this government has the wrong economic policies and lacks the leadership to implement reforms that will grow the economy and create the jobs South Africa needs. President Zuma’s government has only taken us from one scandal to the next, when it should have been putting in place growth-oriented policies such as those set out in the DA’s Plan for Growth and Jobs. The current economic performance of developing countries around the world shows that it is possible to achieve high growth rates today. African countries in particular are expected to achieve exceptionally high growth this year. According to the African Economic Outlook Report Ghana will grow at 7.1%, Mozambique at 7.4% and Zambia at 7.3% in 2013. We are confident that, with the right policies and strong leadership, South Africa has the potential to achieve similar growth rates. The DA’s top priorities remain growing the economy and creating jobs. The GDP figures released today are a reminder of how this government is failing to prioritise either of these. Next year’s elections will allow South Africans an opportunity to show their disappointment with this government by voting for a party with a plan to grow the economy and create the jobs needed to undo the legacy of Apartheid.

Coenraad Bezuidenhout of the Manufacturing Circle

The manufacturing sector’s minus 1.2% contribution to GDP growth confirms that although a more competitive rand presented some opportunities for retaining their ground, a cocktail of high domestic costs, supply constraints and low global demand are still holding the sector back.While domestic costs remain high due to bunched-up administered price increases and wage increases which have not been matched by productivity improvements, supply constraints have been driven by steel shortages, power outages, water scarcity, the emergency shutdown of a liquefied petroleum gas refinery and a shortage of tin plates. Manufacturers also reported shortages of high grade coal, insufficient inbound and outbound railway services, outbound harbour capacity and service delivery constraints, as well as inadequate foundry capacity. While the rand has weakened even further in the second quarter, any benefit to manufacturing growth will remain suppressed as long as domestic cost pressures and supply constraints remain unadressed. In light of the latest warnings on reserve margins by Eskom, the situation is clearly deserving of attention by labour, business and government.

Dawie Roodt from the Efficient Group:

The numbers were a real shocker; much lower than what we expected. It probably means that GDP for 2013 could come in below 2% – less than population growth. This is a recession for all practical purposes. Furthermore, manufacturing was the main drag on the figures, contracting by 7.9% – and it’s the only sector that can really create a significant numbers of jobs. Unemployment will remain high and may even increase further.

Ettienne Le Roux of RMB:

The 0.9% quarter on quarter, annualised, GDP number was much weaker than our forecast (2.2%) and the market consensus projection of 1.6% (Reuters). The negative surprises: contraction in real value-add was deeper than anticipated in agriculture, manufacturing and utilities. Modest growth accelerations in the trade, transport and finance sectors were in line with projections. Elsewhere, growth in employee compensation moderated to 7.4% y/y, from 9.1% in 4Q12 and 8% in 3Q12. Gains in the gross operating surplus (a macroeconomic measure of companies’ earnings) improved marginally, but remains weak at 6% y/y in 1Q13. Both these outcomes suggest the weakening trend in consumer (as well as private sector fixed investment) spending continued in 1Q13. For confirmation we await the release of the SARB Quarterly Bulletin later this month.

As for the outlook: today’s number implies the economy started the year on a much weaker footing than initially anticipated. What’s more, prospects are poor: the 1Q13 rebound in mining is most unlikely to last (labour unrest, strike action etc), while manufacturing output should remain under pressure, despite the weaker currency (tepid global growth, potential electricity shortages and slowing consumer expenditure). The 1Q13 shock forced us to lower our full-year 2013 GDP growth estimate from 2.4% to +-2%. In the context of low (if not falling) consumer and business confidence, as well as a weak (if not weakening) external environment, the risks to our new GDP forecast are skewed to the downside. We maintain our view of another 50 basis point interest rate cut in 3Q13. Slower growth also poses a threat to the government’s budget position (The National Treasury still expects GDP to expand by 2.7% this year).

Conclusion

This is a worrying growth number, suggesting a virtually stagnant economy. The Reserve Bank’s Monetary Policy Committee declined to reduce interest rates last week. Armed with today’s GDP number, they might have come to a different conclusion.

Tweets of the Day

Barney Stinson (@stinsonsays): Beer is good but beers are better.

Mark Twain (@MarkTwainTwtr): Man – a creature made at the end of the week’s work when God was tired.


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