South Africa: Economy expands at a faster-than-expected pace in Q4
March 6, 2018
According to data released by Statistics South Africa, growth in economic activity accelerated from 2.3% in quarter-on-quarter seasonally-adjusted annualized (SAAR) terms in the third quarter to a 3.1% qoq SAAR increase in the fourth quarter. The reading surprised market analysts, who had expected a softer 1.8% expansion. Q4’s print marks the third consecutive expansion after the economy exited a technical recession in Q2, which suggests that growth is slowly gaining traction.
The acceleration in Q4 was propelled by the domestic economy. Private consumption expanded 3.6% quarter-on-quarter, higher than the previous quarter’s 2.4% increase. Faster growth was supported by steady inflation and increased spending on household furnishing and equipment, and health services. Despite the strong expansion, private consumption remains constrained by elevated unemployment, which averaged 26.7% in Q4. Fixed investment swung from a 2.7% contraction in Q3 to 7.4% growth in Q4, a one-year high. The upturn was driven by investment in machinery and other equipment, along with transport equipment. Additionally, a substantial build-up in inventories in the fourth quarter contributed positively to GDP growth (Q4: +2.9 percentage-point contribution; Q3 -2.3 percentage-point deduction). Lastly, growth in government consumption accelerated moderately to 1.6% in Q4 (Q3: +1.3% qoq).
The external sector had a weak performance in the fourth quarter, deducting 4.0 percentage points from growth (Q3: +3.1 percentage points) as imports outpaced exports. Imports of goods and services swung from an 11.3% contraction in Q3 to a 26.5% expansion in Q4 on surging imports of machinery and equipment. Growth in exports clocked in at 12.3%, contrasting Q3’s 0.6% contraction. The increase in exports was buttressed by higher overseas demand for base and precious metals, underscoring the sustained recovery in key commodity prices, such as platinum, observed in Q4.
The political outlook has cleared after Cyril Ramaphosa was sworn in as president on 15 February; he has shown a commitment to putting the country back on a path of fiscal sustainability by raising the VAT on 20 February, even amid high unemployment and a presidential election next year. A more stable political landscape has contributed to increased business confidence and caused the rand to appreciate to an over-three year high on 16 February. However, raising the VAT will weigh on private consumption, and the parliament’s recent decision to amend the constitution to expropriate land without compensation have stoked fears among business leaders and property owners. If the plans go through, they could severely weaken business confidence and investment.