South Africa: GDP growth falls sharply in Q4

South African GDP (measured by production) contracted 0.3% at a seasonally adjusted annualized rate in the final quarter of 2016, which is typically one of the most economically active periods of the year. The result was worse than the flat figure the markets had expected and followed an already weak result in Q3. According to the report released by Stats SA on 7 March, the main drag on overall economic growth was a massive decrease in mining and slow activity in the manufacturing sector. Compared to the same quarter of the previous year, GDP increased 0.7% in Q4, mirroring Q3’s expansion.

Mining contracted 11.5% over the previous quarter, which contrasted a 4.2% increase in Q3. The contraction in the sector reflected a combination of weaker world demand for coal, gold, iron ore and platinum—South Africa’s main export commodities—which prompted prices to remain low and weak investment in the sector, due to policy uncertainty surrounding mining legislation. The manufacturing sector decreased 3.1% SAAR in Q4, which followed a 3.3% contraction in Q3. Activity in the manufacturing sector performed erratically in the second half of 2016 and the sector continued to struggle in the face of subdued domestic and external demand. Moreover, the agricultural sector decreased further in Q4, although the drop was the softest since the sector began to contract in Q1 2015.

Looking at expenditure, private consumption increased 2.2% in Q4, maintaining Q3’s pace. Conversely, government spending decelerated to a 0.3% expansion in Q4 from a 1.9% increase in Q3. Gross fixed investment rebounded and increased 1.7% in Q4, which represented the first positive reading, following four consecutive quarters of contractions. However, the increase in fixed investment was not enough to prevent a 15.0% plunge in total investment in Q4, which was the result of a substantial destocking process. On the external front, the contribution from net exports was positive in Q4 as exports of goods and services grew quicker than imports.

Give the dismal result in Q4, South Africa’s GDP expanded just 0.3% in 2016 as a whole, which is the country’s worst economic performance in seven years.

In its 2017 budget, unveiled in February, the government announced that it expects the economy to expand 1.3% this year and 2.0% in 2018. Meanwhile, the Central Bank revised slightly its growth forecast for this year in January and expects GDP to increase 1.1% (previous estimate: 1.2%) For 2018, the Bank still expects growth of 1.6%. FocusEconomics Consensus Forecast panelists expect the economy to expand 1.2% in 2017, which is unchanged from last month’s estimate. For 2018, GDP is expected to grow 1.8%.