South Africa: Fixed investment weighs on consumer spending- and net export-led growth in Q4 2018
March 5, 2019
South Africa’s economy slumped through last year-end but nonetheless expanded modestly in seasonally-adjusted and annualized (saar) terms. According to Statistics South Africa, on a quarter-on-quarter basis and at market prices, fourth-quarter growth moderated to 1.4% saar (Q3 2018: +2.6% saar). The fourth-quarter reading beat analysts’ expectations of a more pronounced cool-off. On an unadjusted year-on-year basis, growth slowed to 1.1% (Q3: +1.3% year-on-year). From the supply side, an agricultural-, manufacturing- and services-sector slowdown was punctuated by a drop-off in mining-sector output.
Meanwhile, a breakdown by expenditure revealed that weaker fixed investment bruised domestic demand. On a quarter-on-quarter basis, fixed investment dropped 2.5% saar (Q3: -0.7% saar)—losing ground for the fourth quarter in a row amid tepid economic sentiment. Meanwhile, household spending picked up (Q4: +3.2% saar; Q3: +0.6% saar) in line with marginal labor-market gains and despite elevated inflation. Government spending accelerated, too (Q4: +0.6% saar; Q3: +0.4% saar).
On the external front, net exports were upbeat. Imports of goods and services slipped 16.0% (Q3: +22.3% saar) on fewer purchases of machinery and equipment. Exports of goods and services, meanwhile, were up 11.1% saar (Q3: +26.0% saar) and appeared to benefit from the cyclical recovery in regional trade. Taken together, foreign trade added 8.0 percentage points to the headline reading—outshining a 1.2-percentage-point addition in the third quarter.
Commenting on the fourth-quarter reading, Andrew Matheny, an analyst at Goldman Sachs, noted:
“Relative to our forecast, household consumption and net exports were notably stronger than our modeling had suggested, while inventories contributed negatively to growth—against our assumption of a small, positive contribution. Meanwhile, the support from agricultural production and exports remained strong, in line with our expectations.”