According to Stats SA, the South African economy expanded by 2.2 percent in the 3rd quarter of the year (seasonally adjusted, annualised), which will come as a sigh of relief to many. This was also better than expected, compared to our forecast at Industry Insight of 1.4 percent growth, and a Bloomberg consensus of 1.9 percent. This is compared to the previous quarter where the economy contracted by 0.4 percent (adjusted upwards from a decline of 0.7 percent initially reported), and this also brings the economy out of the technical recession it found itself in.
Boosting growth in the 3rd quarter were much better numbers coming out of the more retail/consumer driven sectors such as retail and wholesale trade, as well as finance, business services and real estate. Both these sectors recorded good growth in the 3rd quarter of 3.2 percent and 3.3 percent respectively. This comes as consumers have come under increased pressure in 2018, with higher taxes such as the increase in VAT, record high petrol prices (which at least are expected to moderate significantly in December), as well as rising interest rates. Not to mention an economy that is performing extremely poorly, with many consumers getting below inflation salary and wage increases.
The transport and communication sector also added a good boost to growth, with the sector growing by 5.7 percent in the 3rd quarter, off the back of poor figures in the 1st and 2nd quarters of the year. Other sectors that contributed positively were the manufacturing industry which grew by a good 7.5 percent, off the back of just 0.6 percent growth in the 2nd quarter. This is significant, as the manufacturing industry makes up roughly 15 percent of the South African economy from the production side. The agriculture sector also bounced back, after two extremely poor quarters, growing by 6.5 percent.
The construction sector on the other hand, did not share in the fortunes of some of the other sectors, and reported a 2.7 percent decline in the 3rd quarter. If we are to break down was caused the decline, according to the gross fixed capital formation figures, which were released in conjunction with the GDP data, it was the civil as well as the residential market that drove the sector down in the 3rd quarter. Investment in the civil construction sector declined by 2.4 percent in the 3rd quarter, and investment in the residential market declined by 3.4 percent. The non-residential sector on the other hand saw an increase of 0.8 percent, and is the 3rd consecutive quarter that investment has expanded on a quarter on quarter, seasonally adjusted basis. We speculate that this is purely private sector non-residential construction, predominantly shopping centers and some industrial buildings. Overall, the construction industry remains at historically low levels in terms of investment.
In terms of the forecast for the rest of the year and 2018 as a whole; these figures reinforce the consensus GDP forecasts of between 0.6 and 0.8 percent. These are extremely poor figures if you consider that population growth in South Africa is in excess of 2.0 percent, and the degree of inequality. More positive is that we have already seen steps taken in terms of the inquiry into state capture, and an effort to reverse some of the effects of systemic corruption under the Zuma administration. It will be a long road ahead, and many investors (local and foreign) remain on the fence, and the ‘wait and see’ approach is prevailing until the election next year has been concluded.
