South Africa’s economic growth prospects for 2019 took a knock yesterday   File Photo: IOL
South Africa’s economic growth prospects for 2019 took a knock yesterday File Photo: IOL

GDP setback for SA's recovery hopes

By Siphelele Dludla Time of article published Dec 4, 2019

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JOHANNESBURG - South Africa’s economic growth prospects for 2019 took a knock yesterday as the gross domestic product (GDP) print in the third quarter showed that the expected bumper sales in the festive season may not be able to buck the downward trend.

Data from Statistics SA (StatsSA) showed that the economy surprised on the downside, contracting 0.6percent from the unexpected 3.2percent growth in the second quarter.

Analysts quickly pointed out that the data could open further avenues for Moody’s to downgrade the country’s sovereign debt to junk.

North West University Business School economist Professor Raymond Parsons said the third-quarter growth figures emphasised the seriousness of the economic challenges faced by the country.

Parsons said the figures showed that the economy would struggle to record the 0.5percent growth forecast by the government and ratings agencies.

“Speedier economic and fiscal reforms must therefore be expedited to reduce policy uncertainty, boost investor confidence and lift the economy out of its current low growth trap,” Parsons added.

“A sustained reform momentum needs to be more visibly demonstrated.

"To avoid further investment downgrades South Africa must be clearly seen to be implementing - in collaboration with the private sector - a credible turnaround economic plan to promote job-rich growth,” he said.

Last month, the SA Reserve Bank (Sarb) revised the country’s growth projections downwards to 0.5percent for 2019 from 0.6percent in September. In February, the forecast was 1.5percent.

The International Monetary Fund also lowered its forecast to 0.5percent in October from a previous 1.2percent forecast in April.

The rand fell nearly 1percent to R14.67 against the dollar after the release of the GDP figures yesterday, before recovering slightly to trade at R14.65 by 5pm.

StatsSA said retail sales rose a marginal 0.2percent in September from a 1percent increase the prior month, showing that growth was likely to remain flat in the third quarter as consumer sentiment remained negative.

It said mining, manufacturing and transport sectors were the biggest drags, as the demand environment remained weak.

Only trade, finance, real estate and business services, and general government services made positive contributions to the print.

The statistics body said household consumption expenditure - a significant driver of growth - remained lacklustre at 0.2percent growth, down from 2.6percent the previous quarter.

Investec chief economist Lara Hodes said that consumption expenditure was anticipated to remain constrained over the medium term, only improving gradually over the 2020 to 2025 period.

“Years of weak growth, inhibited by a myriad of factors, including poor governance and an onerous regulatory environment leading to lower, and eventually depressed confidence, has gradually weakened consumer’s financial health,” Hodes added.

The third quarter decline was the second this financial year following a 3.1percent contraction in the first quarter.

StatsSA said that consumption growth slowed considerably to 0.2percent quarter-on-quarter, in line with low consumer confidence and a rising unemployment rate.

FNB economist Matlhodi Matsei said that they had expected a more pronounced slowdown, given that the boost in the second quarter was election-related.

Matsei added that economic growth in the medium term would be lower than that forecast by the National Treasury and the Sarb.

“Looking ahead, we expect to see a declining pattern in government consumption amid deteriorating debt dynamics,” Matsei said.

“We forecast year-on-year growth for 2019 at a mere 0.3percent and temperately lifting to 0.9percent and 1.2percent in 2019 and 2020 respectively.”


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