The South African economy is in more trouble than earlier thought. Stats SA data shows the economy shrunk by 0.6% in the third quarter – more than economists had expected.
Mining, Manufacturing, Transport and Agriculture have been highlighted as the negative contributors.
South Africa’s Gross Domestic Product (GDP) contracted by 0.6% quarter-on-quarter in the third quarter of 2019. Statistics South Africa (Stats SA) says the decrease was followed by an increase of 3.2% in the second quarter.
GDP grew by 0.1% year-on-year for the third quarter.
Mining was the biggest drag on growth down 6.1% largely driven by fall in production of platinum gold metals. The latest GDP numbers signal an extremely weak growth environment that continues to impact on unemployment and tax collections.
The country’s economy grew by 0.1% below market expectations. Economists say growth will likely remain weak for the remainder of 2019.
“South Africa’s economic performance in 2019 will be pedestrian and overall growth will be in the very single digits but this means that 2020 could possibly be slightly be elevated because of the weaker base in 2019,” says Standard Bank Chief Economist Goolam Ballim.
Chief Economist Azar Jammine believes we are unlikely to see meaningful improvement in GDP for the next two years until government sets about implementing macro -economic reforms and addressing structural weaknesses in the economy.
“If only government were to implement those reforms we could well see a significant turnaround in GDP growth fortunes over and above what might come about increased capital formation. There appears to be a status quo between those favouring the implementation of these reforms and those who are resisting them for fear of losing out on some of the benefits that they have gained over the past decade by being close to the centres of corruption.”
Stats SA says the largest negative contributors to the GDP in the third quarter were manufacturing, mining, transport, storage and communication industries. Manufacturing decreased by almost 4% and transport by 5.4%.
“Third quarter GDP came out worse than most people had anticipated because although we knew that mining, manufacturing, electricity, building and retail sales had all disappointed in based on monthly data already reported we didn’t expect such a steep 5.4% contraction in transport and communications and a further decrease in agricultural output for the third consecutive quarter. There was also decrease in financial activity,” says Jammine.
Some economists however remain hopeful growth will pick up slightly next year.
“Some slight pickup in growth in the next few quarters. And the most encouraging feature emanating from these is that from the second consecutive growth fixed capital formation grew by a substantial amount. This could just be the precursor to a gradual turn around in the fortunes of South African economy driven by the investment drive by President [Cyril] Ramaphosa,” says Jammine.
Ballim says South Africa’s economic growth could surpass 1%.
“The global economy could accelerate and that could boost commodity prices which are a significant stock in South Africa’s GDP growth. The second driving force is greater confidence that the president reform agenda is beginning to show traction and that could enlist private sector investment which is essentially the ingredient to stimulate both medium and long term economic growth. And I think also some confidence that Eskom is being stabilised both operationally and financially could also entice some degree in investment in the industrial structure.”