South Africa: Short-lived recession ends as demand bounces back
December 4, 2018
South Africa’s economy bounced back in the third quarter from a short-lived technical recession in the first half of the year, expanding in seasonally-adjusted and annualized (saar) terms. According to Statistics South Africa, on a quarter-on-quarter basis and at market prices the economy grew 2.2% saar, contrasting the second quarter’s revised 0.4% saar contraction (previously reported: -0.7% saar). The third-quarter reading beat analysts’ expectations of a more moderate expansion. On an unadjusted annual basis, growth nearly tripled from the second quarter and landed at 1.1% (Q2: +0.4% year-on-year). A rise in agricultural yields and manufacturing output drove the near broad-based acceleration.
Meanwhile, a breakdown by expenditure showed a rebound in domestic demand. On a quarter-on-quarter basis, household spending rose 1.6% saar (Q2: -1.1% saar), as consumers adjusted to the second quarter’s value-added tax hike—and likely got a boost from a one-off payout of government employees’ back pay. Growth in government spending, likewise, climbed to 2.2% saar (Q2: +0.8% saar). Fixed investment nosedived 5.1% saar (Q2: -0.7% saar) in line with a pullback in construction efforts, while firms’ capital-spending plans were put on hold amid the controversial land-reform debate. A significant accumulation of inventories added 2.8 percentage points to the headline reading.
On the external front, imports of goods and services jumped 26.7% saar (Q2: +4.0% saar) on purchases of machinery and equipment. Exports of goods and services, meanwhile, were up 24.2% saar (Q1: +12.7% saar) on shipments of automotive-sector products. Taken together, foreign trade subtracted 0.6 percentage points from the headline reading—contrasting the second quarter’s 2.7-percentage-point addition.
Commenting on the third-quarter reading, Sthembiso Nkalanga, an economist at JPMorgan, noted:
“Incorporating the [Q3] outcome, we now expect GDP growth at 0.6% this year (previously 0.5%) and slightly higher at 1.3% next year (previously 1.2%) as fundamental support for the economy remains muted, notwithstanding the growth impetus from unlocking the supply-side bottlenecks in the agriculture sector. [Moreover,] the economy will continue its slow recovery unless the investment cycle begins to turn more materially. While we expect inflation to trend higher next year, the consumer should nevertheless benefit from a fading fiscal drag and above-inflation compensation growth.”
Author: Christopher Thomas, Economist