While GDP grew in the latest quarter, a slew of other data released over the past week or so reveals just how stretched the economy is
South Africa out of recession but hard times remain
Although South Africa last week emerged from a technical recession, economists warn it is by no means out of the woods yet and troubled times still lie ahead.
The country still has significant challenges, especially with more than a third of the working population being unemployed.
While gross domestic product rose by an annualised 2.2 per cent in the three months through September, compared with a revised 0.4 per cent contraction in the prior quarter, the government target of 5 per cent GDP growth per year remains a distant goal.
The latest GDP numbers were released on Tuesday by Statistics South Africa (Stats SA), the state-run data collection agency. The figure just beat economists’ expectations, which according to Bloomberg's median estimate of analysts was for 1.9 per cent growth.
“GDP at 2.2 per cent annualised was slightly better than expectations,” Wayne McCurrie, FNB Wealth and Investments portfolio manager tells The National. “So out of a technical recession. Which is marginally good news - but only marginally. Still, this is better than jab in the eye with a sharp stick.”
The improvement was largely thanks to a recovery in manufacturing and agriculture, Stats SA said. Together, they grew 4.5 per cent in the latest quarter over the previous one.
Demand improved for basic iron and steel, metal products and machinery. Rising consumption of petroleum and chemicals, together with wood and paper also helped.
And although overall domestic sales of motor vehicles fell, exports of these increased. South Africa is the only country on the continent with an established motor manufacturing industry.
“The momentum of export sales has improved over the past few months,” says Nico Vermeulen, director of The National Association of Automobile Manufacturers of South Africa. “Taking into account relatively strong order books reported by most vehicle exporters, sales should improve further and reflect strong growth in 2019 and subsequent years.”
Agriculture also put wind in the sails of the GDP data. The country has emerged from one of the worst droughts in its history, and now that the rains have returned, farmers are once again producing crops such as maize and animal products. All in all, agriculture grew 6.5 per cent over the third quarter from the second quarter.
South Africa entered a technical recession in September, following two consecutive quarters of declining GDP.
Global bodies such as the IMF and World Bank have accordingly reduced their outlook for South Africa. The World Bank recently cut its 2018 prediction of 1.4 per cent GDP growth to 1 per cent. And in October the IMF revised its prediction downwards, pointing to 0.8 per cent growth for this year, down from its initial projection of 1.5 per cent in April.
In this context, local economists are not overly positive.
“One sparrow doesn’t make a summer,” sThabi Leoka, an independent economist, tells The National. Ms Leoka is even more pessimistic than either the IMF or World Bank about the overall numbers for the year. “2018 GDP is expected to be around 0.5 per cent, which is rather feeble,” she says.
A slew of other data released over the past week or so reveals just how stretched the economy is.
FNB Bank published a report that showed 56 per cent of middle-income consumers – people who earn between 7,000 rand (Dh1,869) and 60,000 rand per month - spend all their salary within five days of receiving it. For many, debt repayments make up more than half their take-home pay.
Rolling power cuts also look to be making a return as struggling state utility Eskom battles with deteriorating infrastructure and a 400 bilion rand mountain of debt. Consumers and business are already dealing with up to five hours a day of power cuts, a situation that looks set to remain well into the New Year.
Agriculture, which performed well over the past quarter also has a cloud on the horizon. The ruling African National Congress is weighing up changing the constitution to allow the full confiscation of land, leading to fears of a Zimbabwe-style grab of farms.
As a result, confidence in South Africa’s agricultural industry declined to the lowest in nine years, according to a report last week by AgriSA, the country’s largest farmers union. Confidence fell from 48 points to 42 over the past quarter.
“We doubt that there will be a meaningful improvement in confidence in the near term if there is still no clarity regarding the land reform policy in South Africa,” says Wandile Sihlobo, AgriSA head of research. “Any reckless move in policy which might undermine property rights could dent investment and long-run growth prospects in the sector.”
There are bright spots, however. Tourism and mining, both of which have been hampered by poor policy decisions, look set to improve over the coming year. Scrapping legislation that increased mandatory black ownership of mines will help the resource sector, analysts say.
Similarly, the cancelling of visa restrictions that required tourists with children to carry full birth certificates, as well as other red tape, is likely to improve the flow of foreign visitors to the country.
Still, few doubt that the country will struggle to raise economic activity in the coming year.
“With a population growth of 1.6 per cent, and [GDP] growth of 2.2 per cent, you will barely keep your living standards at the level they were before,” says Azar Jammine, director and chief economist of Econometrix.
“The economy is not collapsing. But it is stagnant.”