South Africa: GDP contracts in Q1 on mining, manufacturing and agricultural losses
June 15, 2018
South Africa’s economy contracted in annualized terms in the first quarter, pointing to the end of the so-called “Ramaphoria” that followed the new president’s appointment in January, and highlighting the ongoing challenges facing the economy. Data released by Statistics South Africa showed the economy shrank 2.2% on a quarter-on-quarter basis and in seasonally-adjusted annualized (SAAR) terms, reversing the strong outturn recorded in the fourth quarter of last year (Q4 2017: +3.1% SAAR). The first-quarter reading upset analysts, who had expected a more moderate 0.5% SAAR contraction. Furthermore, on an annual basis, growth slipped to 0.8% (Q4 2017: +1.5% year-on-year). Driving the broad-based moderation—the worst since the depths of the financial crisis—were contractions in the mining and manufacturing sectors, as well as in the agricultural sector.
Domestic demand eased markedly, held back by across-the-board slowdowns. Growth in household spending more than halved, slowing to 1.5% SAAR (Q4 2017: +3.6% SAAR) as consumers were pinched despite moderating inflation and a stronger rand. Growth in government spending, likewise, slowed to 1.2% SAAR (Q4 2017: +1.6% SAAR), which nonetheless reflected an increase in state-paid employees. Fixed investment contracted 3.2% SAAR in the quarter (Q4 2017: +7.4% SAAR) on a nearly broad-based decline in activity—including residential and machinery outlays, as well as construction activity. Non-residential investment, on the other hand, was the only subcategory to record growth. Modest buildups of inventories, which contributed 0.1 percentage points to the headline reading, were recorded in the manufacturing and utility industries.
The external sector also posted a disappointing outturn, with exports of goods and services falling 16.5% SAAR (Q4 2017: +12.3% SAAR) on falling trade in base metals and mineral products—coinciding with the contraction in mining output. Meanwhile, imports of goods and services fell 6.5% SAAR as machinery and vehicle imports plummeted. Taken together, the external sector subtracted 3.1 percentage points from the headline reading—a modest improvement from the 4.0 percentage points subtracted in the fourth quarter last year.
South Africa GDP Forecast
Despite a discouraging first quarter, the SARB still expects the economy to grow 1.7% both this year and next. Most FocusEconomics analysts see the economy riding out the first quarter as a one-off and expect full-year growth to remain broadly in line with their earlier forecasts; they see growth of 1.8% this year, down 0.2 percentage points from last month’s forecast, and 2.0% next year.
Author: Christopher Thomas, Economist