South Africa

South Africa GDP Q1 2019

South Africa: Load-shedding leaves South Africa’s economy reeling in Q1

South Africa’s economy slumped at the outset of the year, contracting sharply in seasonally-adjusted and annualized (saar) terms. According to Statistics South Africa, on a quarter-on-quarter basis and at market prices, first-quarter output fell 3.2% saar (Q4 2018: +1.4% saar). Analysts were surprised; they had expected a more modest downturn. In unadjusted terms and on a year-on-year basis, growth was flat (Q4 2018: +1.1% year-on-year). On the supply side, load-shedding weighed heavily on mining- and manufacturing-sector output, while one-off factors appeared to bruise agricultural-sector output.

A demand-side breakdown, meanwhile, revealed the extent to which this year’s rolling blackouts took their toll on the economy. On a quarter-on-quarter basis, household spending dropped 0.8% saar (Q4 2018: +3.2% saar) amid waning economic sentiment and an uptick in the unemployment rate. Government spending, which rose 1.3% saar (Q4 2018: +0.6% saar), was unable to offset this. Fixed investment, meanwhile, fell for the fifth quarter in a row (Q1: -4.5% saar; Q4 2018: -2.5% saar) as economic uncertainty continued to deter non-residential outlays.

Net exports were equally downbeat. Exports of goods and services tumbled 26.4% saar (Q4 2018: +11.1% saar) on weaker motor vehicle sales. Imports of goods and services, meanwhile, slipped 4.8% (Q4 2018: -16.0% saar). Taken together, foreign trade subtracted 6.7 percentage points from the headline reading—a far cry from the 8.0-percentage-point addition in the fourth quarter of last year.

Commenting on the first-quarter reading, Andrew Matheny, an analyst at Goldman Sachs, noted:

“We draw [some] conclusions […]: (1) load-shedding seemed to weigh more heavily on growth than our estimates implied; [and] (2) weak confidence (as well as load-shedding) appear to have held back household consumption by more than we anticipated. […] We mechanically revise down our forecast for full-year GDP growth for 2019 from 1.5% to 0.6%, but maintain our forecast for 2020 growth unchanged at 2.5%. Given the pattern of weakness in heavy industry and exports, as well as ongoing risks of renewed load-shedding, risk to both forecasts are tilted to the downside.”

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