GDP Limps Forward

Data out today show that in the second quarter of this year, the economy expanded slightly – by 0.6% quarter on quarter, seasonally adjusted, annualised, compared to a fall of -0.6% in the first quarter.  This is feeble growth, but it does mean that technically a recession has been avoided, as this would have required a fall in growth for two consecutive quarters.   What do our experts make of it?

Mike Schussler from economists.co.za:

Manufacturing and Mining are in recession. Private construction according to the buildings completed statistics declined with 50.7% in the 2nd quarter so all construction growth in the GDP numbers is from government and State Owned Enterprises, which means that overall this is a state-led growth which will not be sustainable as prices for power rush up and tax revenue declines radically.  Four sectors recorded declines in the 2nd quarter.  We may not be in recession but we are certainly not out of trouble by a long way. SA is dead in the water when it comes to job growth. Trade and Electricity joined mining and manufacturing in declining in the 2nd quarter. (As did private sector construction). Without government expenditure increases and construction by State Owned Enterprises and agencies we would have recorded 0% growth. Taking the private construction sector decline into account it is probably now the 2nd quarter in a row that the private sector declined. The tax revenues are going to decline and the government deficit as a percentage of GDP is likely to stay above 4% for the next two or three years.  Moreover SA GDP growth has averaged less than 2% over the last five years and this year will not be better – probably worse, at under 1.5% for 2014. We expect to compete with other countries as an investment destination as our growth may be better than Europe, but not anyone else.

Prof Raymond Parsons from NW University:

While we should be pleased to have escaped a ‘technical recession’ by the skin of our teeth in the 1H2014, it is true that there is nothing to be complacent about as we drift along at the bottom of the business cycle. Unpacking the negative economic sectors is not a pretty picture. While there will obviously some welcome ‘bounce back’ in some of business sectors in the next few months I agree that SA will be lucky to enjoy a growth rate of about 1.5% for 2014 as a whole. It has all the makings of a ‘low growth trap’, unless….? As we now embark on another bout of economic self-flagellation, I would also counsel that – given the poor growth outlook, and with inflation easing slightly, as well as the Fed’s Janet Yellen still being very cautious – we forget about any further interest rate increases in SA for the time being. 

Annabel Bishop of Investec:

The manufacturing sector contracted by 2.1% and the mining sector by 9.4% as work stoppages caused by strike action and electricity constraints caused a GDP outcome close to 0% qqsaa.  On a year on year basis the economy saw weak growth of 1.0% in Q2.14 and 1.3% y/y in the first half of 2014, which does not bode well for 2014. Over the past few years South Africa’s economic growth has been deteriorating substantially, and GDP growth is at risk of approaching the 1.0% y/y mark this year after recording 1.9% y/y in 2013, 2.5% y/y in 2012 and 3.6% y/y in 2011. Strike action and reduced supply of electricity has slowed production, while real household consumption expenditure growth has deteriorated on weakened financial health, waning demand, and flagging manufacturing production.

Nedbank Economic Unit:

The outlook remains murky.  Recent economic indicators suggest that the weakness continued into the third quarter, with the NAAMSA strike disrupting manufacturing output throughout July.  Consumers are generally expected to remain cautious given pressure on household income, rising debt service costs and a deteriorating job market.  However, the mining and manufacturing sectors should fare better off a low base, supported by some improvement in global demand.   Although South Africa avoided recession, underlying conditions remains generally weak and confidence is still very fragile.  The risk to the growth outlook therefore remains firmly on the downside.  At the same time, inflation has turned the corner, helped by a slightly firmer rand and falling food prices.  Although encouraging, the inflation outlook is still uncertain given that the rand remains vulnerable due to the country’s relatively large budget and current account deficits and possibility of further sovereign ratings downgrades at a time when global risk appetites may change abruptly in response to changes in US monetary policy.  The MPC will probably continue to move cautiously.  We still expect interest rates to increase by another 25 basis point in November, with further tightening in the second half of 2015.

 Conclusion:

South Africa is within a small statistical error from being in recession.  The feeble current growth rate is not going to create the jobs we need.  The crisis deepens.  

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