BER flagged indications that first quarter weakness carried over to the second quarter and policy proposals that are unlikely to achieve the necessary balance between a transformation agenda and enabling business sector growth.
“The initial batch of the second quarter data releases suggests that a strong GDP bounce-back after the first quarter weakness (as was the case in 2016 and 2017) is unlikely. As a result, we have made a meaningful downward adjustment to the real GDP growth forecast,” BER said in a summary of its findings.
South Africa’s economy contracted 2.2percent in the first quarter - the biggest contraction since the third quarter of 2009. The agricultural sector, which led the charge in last year’s last quarter growth of 3.1percent, saw its biggest contraction since 2006, shrinking 24.2percent in the first quarter.
Output in the mining sector shrank 9.9percent in the first quarter, while manufacturing production also failed to make a positive contribution to economic growth, falling by 6.4percent in the quarter.
Both sectors have also failed to inspire in the beginning of the second quarter with activity data. “Given the absolute decline in the first quarter and the poor numbers thus far released for the second quarter - ie, weak car sales, soft Absa/BER PMI - it looks like there was very little growth in the first half of the year,” Dave Mohr, chief investment strategist at Old Mutual Multi-Managers, said.
“So it is highly unlikely that the economy can rebound so much during the second half of the year to register 2percent growth for the whole year.”
BER joined a litany of other companies that have revised down their previously optimistic growth forecasts.
Option to cut
Investec last week lowered its GDP growth forecast for 2018 to 1.4percent from 1.8percent previously.
London-based economic research consultancy Capital Economics last week also said it had opted to cut its 2018 GDP forecast from 2percent to 1.3percent. International rating agency Fitch last month revised its South Africa outlook from the 2.3percent it forecast previously to 1.7percent.
Nedbank and NKC African Economics have also cut their full-year forecasts from 1.9percent to 1.5percent following the first-quarter GDP data.
BER also painted a bleak picture of the rand’s performance for the remainder of the year and downscaled the rand forecast significantly.
BER forecast the local currency to trade in the range of R13 to R14 against the dollar through the fourth quarter of 2019 - ending the period around R13.40.
The rand recently weakened materially in the second quarter on the surge in global risk-off sentiment and trade wars between the US and its major trade partners.
- BUSINESS REPORT