South Africa: Economic growth disappoints in Q3
December 6, 2016
Following the acceleration in the second quarter, South Africa’s economy disappointed in Q3. Official data released by Statistics South Africa (Stats SA) on 6 December show that in the third quarter, GDP expanded a weak 0.2% over the previous quarter in seasonally and annualized terms (quarter-on-quarter saar), which was well below the 3.5% increase seen in the previous quarter. The figure was below market expectations of a 0.5% expansion.
In annual terms, the economy stalled as GDP expanded 0.7%, which matched the previous quarter’s reading. South Africa’s economy remains stuck in a low gear due to myriad domestic and external problems. A slow recovery in global demand, weak commodity prices, political turmoil and the lack of much needed structural reforms are holding back growth. The country narrowly avoided a credit rating downgrade earlier this month, but it remains under high scrutiny and risks a rating review if the economic environment does not improve.
Q3’s deceleration came on the back of a steep deceleration in the external sector, while all components of domestic demand improved. Due to a base effect exports swung from a 22.8% increase in the second quarter to a 26.4% decrease in the third quarter on a sequential basis. Imports contracted 4.9% over the previous quarter, which was up from the 5.2% decrease seen in the second quarter. As a result, the external sector’s contribution to overall growth swung from plus 8.7 percentage points from Q2 to minus 6.8 percentage points in Q3, the lowest reading in over a year. In the third quarter, growth in private consumption improved from 1.4% in Q2 to 2.6%, which marked a multi-year high. Moreover, government consumption also increased and grew 2.1% in Q3, which was up from the previous quarter’s 1.4% rise. Fixed investment contracted 1.0%, which was less than the 6.8% decrease recorded in Q2.
Author: Dirina Mançellari, Senior Economist