South Africa: Economy avoids recession in Q2
September 8, 2016
Following the contraction in the first quarter of this year, South Africa’s economy rebounded in the second quarter, allaying fears of a technical recession. Official data released by Statistics South Africa (Stats SA) on 8 September show that in Q2, GDP expanded 3.3% over the previous quarter in seasonally and annualized terms (quarter-on-quarter saar), which contrasted the 1.2% drop observed in the previous quarter. The figure marked the best result in over a year and surprised the markets which had expected the economy to expand 2.3%. In annual terms, the economy also improved over the previous quarter’s decrease and expanded 0.6%, which contrasted the 0.1% drop seen in Q1. Following the good news, the rand strengthened over 2.0% against the U.S dollar and closed the day at 13.96 ZAR per USD.
Q2’s encouraging figure came on the back of an improvement in almost all sectors of the economy. The manufacturing sector—supported by the petroleum and motor vehicles sub-sectors—rebounded from a 0.6% increase in Q1 to an 8.1% rise in Q2. The figure marked the fastest expansion since Q4 2013. Moreover, the mining and quarrying sector expanded 11.8% in Q2, which contrasted the 18.1% decrease observed in Q1. An increase in the production of platinum was the main contributor of growth in the sector. The agricultural sector contacted 0.8% in Q2, which marked the fifth consecutive contraction but was an improvement over the 6.5% decrease seen in Q1. Conversely, growth in the construction sector decelerated slightly from 0.4% in Q1 to 0.1% in Q2. Despite Q2’s improvement, the economy faces challenges economic and political challenges going forward.
This is the second consecutive quarter in which the Stats SA published GDP figures on the demand side of the economy. In Q2, total consumption rebounded from a 0.9% decrease in Q1 to a 1.1% increase, mainly due to an improvement in private consumption (Q2: +1.0% qoq saar; Q1: -1.7% qoq saar). Moreover, growth in government consumption improved from 1.2% in Q1 to 1.3% in Q2. Fixed investment contracted 4.6% in Q2, which was the third consecutive drop but still an improvement over the 10.0% drop seen in the previous quarter.
On the external side of the economy, exports of goods and services rebounded strongly from an 8.1% drop in Q1 to an 18.1% increase in Q2 due to higher exports of precious metals and transport equipment. Moreover, imports contracted 5.1% in the second quarter, which was an improvement over the 10.5% drop recorded in the first quarter. As a result, the net contribution of the external sector on overall growth jumped from plus 0.6 percentage points in the first quarter to plus 7.2 percentage points in the second quarter.
Author: Dirina Mançellari, Senior Economist