South Africa: Economy expands at a sharper pace in Q3
December 8, 2017
The South African economy is on a path to recovery. According to data released by Statistics South Africa, economic activity in the third quarter rose 2.0% quarter-on-quarter at a seasonally-adjusted annualized rate (SAAR), coming in below the 2.8% rise in the second quarter. The reading surprised market analysts who had expected a softer 1.5% expansion. The quarterly print marks the second consecutive quarter of expansion after the country exited a technical recession in Q2; growth in the quarter was driven by the domestic economy and higher output in key sectors such as agriculture and mining.
Growth in fixed investment rebounded from a 2.0% quarter-on-quarter contraction in Q2 to a sharp 4.3% increase in Q3. The expansion marked the fastest rate of growth since Q3 2015 and was driven by strong increases in investment in machinery and equipment; growth in investment came despite extremely weak business confidence. Private consumption growth moderated from the multi-year high of 4.7% in Q2 to 2.6% in Q3. Growth was driven by moderating inflation and increased spending on non-durable goods such as household furnishings and equipment, transport, and health. Private consumption, however, remains constrained by an unemployment rate over 25% and weak consumer confidence. In contrast, growth in government consumption contracted 0.5%. Overall, total consumption in Q3 came in at 1.8% over the previous quarter in SAAR terms, below the 3.9% rise observed in Q2.
The external sector had an abysmal performance in the third quarter. Exports declined 10.3% in Q3 (Q2: +14.4% SAAR quarter-on-quarter), dragged down by a drop in overseas demand for mineral products, base metals and precious metals. Imports declined at a sharp pace (Q3: -13.7% SAAR qoq; Q2: +13.7% SAAR qoq) as demand for machinery and equipment, and vehicles and transport equipment dipped.
While the quarterly headline figure is welcome news for the South African economy, sizeable challenges remain. Fiscal woes, a decline in confidence in the country’s institutions, and a lack of commitment from the political leadership to push through much-needed reforms prompted downgrades by all three major credit rating agencies this year. The upcoming ANC National Congress on 16-20 December could trigger further credit downgrades if the candidate supported by the incumbent President Jacob Zuma gets elected, as the outlook for reforms would in such a scenario remain bleak. In such a case, it would be likely that business confidence would remain low, public debt would increase and there would not be the political drive to combat corruption and implement reforms to propel economic growth by tackling unemployment and productivity in key sectors, namely mining.
South Africa GDP Forecast
FocusEconomics Consensus Forecast panelists expect the economy to expand 0.7% in 2018, which is up 0.1 percentage points from last month’s estimate. The panel projects growth picking up to 1.3% in 2019.