ANALYSIS: Uptick in GDP due to drop in load-shedding

By Maarten Ackerman Time of article published Sep 6, 2019

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With gross domestic product (GDP) up 3.1 percent in the second quarter of 2019, seasonally adjusted, annualised, and 0.9 percent for the year to June 2019, the markets have responded positively.

The rand appreciated by some 10 cents on publication of the data and bond yields declined by about 10 basis points.

It is comforting to see that we have avoided a technical recession, but most interesting is to note the severe impact that load-shedding can have on the country. We had significant load-shedding in the first quarter of this year, almost nothing in the second quarter, and the impact is clearly visible.

At the same time, the global environment stabilised somewhat in the second quarter of this year, resulting in better performance from exports as well as mining and manufacturing, with less disruptive strikes in the mining sector, in particular, as seen in the previous quarter.

What we can also see is that in an economy where there are many structural issues, if we can sort them out and everything falls into place - if we can get Eskom to a sustainable place - then 3.1 percent growth is still achievable in this economy.

If we can replicate this performance and roll it out over a year, then we have the potential to reach 3 percent annual growth. Unfortunately, at only 0.9 percent, the year-on-year growth remains below the population growth of 1.3 percent, so we can expect unemployment to continue increasing.

It is essential to lift annual GDP growth to be in line with or above the population growth to address unemployment. Then we need to advance to the stage where we can start to create jobs. If we continue down this track, it will be possible in the next three to five years.

Another reason to be upbeat is the 6.1 percent growth in gross fixed-capital formation (GFCF) seen over the quarter - the first time in the past five quarters that South Africa has seen posted a positive GFCF figure.

Regarded as a leading indicator, GFCF reflects willingness to invest back into the economy by buying capital items such as transport equipment, machinery, building and the like. This is a clear indication of positive sentiment and activity. It also dovetails with the uptick we have witnessed in foreign direct investment flowing into the country.

It is also encouraging to see that private consumption expenditure is up 2.8 percent indicating that consumers are no longer on their knees, despite high fuel prices, low social grant hikes, a higher VAT rate and high unemployment.

This growth in consumption has, amazingly, come largely from sales of durable goods, with semi-durables being second in line followed by non-durables and services. This points to a slightly better environment for the consumer.

We saw -3.1 percent in the first quarter and +3.1 percent in this quarter, almost cancelling themselves out. It will, of course, depend on what transpires in the next two quarters, but even if we print 2 percent in both of the next two quarters, that will only bring us to a growth number for 2019 of just below 1 percent. This is still much weaker than what was budgeted for in February, although slightly better the than current estimates.

Maarten Ackerman is chief economist and advisory partner at Citadel.


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