Business

Hold thumbs, the SA economy could have returned to growth

2019-07-16 20:07

Instead of a feared contraction in the second quarter, the economy is likely to have rebounded after contracting by 3.2% in the first quarter.

There were previously concerns that the economy would fall into a recession – which is two consecutive quarters of negative growth – but an improvement in the key manufacturing sector and a less sharp decline in the mining sector were expected to lift the economy in the second quarter.

Investec economist Annabel Bishop wrote in a note last week that GDP was likely to rebound by about 3% quarter on quarter on a seasonally annualised basis in the second quarter of this year partly due to a rebound in industrial production.

The forecast rebound in GDP in the second quarter will cancel out the first quarter’s contraction.

However, Bishop said the forecast rebound in the second quarter would not make much difference to this year’s annual GDP growth, which is expected to expand by 0.8% year on year “at best”.

In the first quarter mining, manufacturing and electricity production contracted partly due to Eskom power cuts.

Jeffrey Schultz, BNP Paribas economist, said that he was forecasting a 2% rebound in local growth in the second quarter on a quarter-on-quarter basis due particularly to an improvement in mining and manufacturing production.

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Schultz said he was forecasting a 0.4% growth in the economy this year.

However, he cautioned that the forecast rebound in second quarter economic growth was coming off the weak base of the first quarter.

About 75% to 80% of the components of GDP emerge through reports issued by Stats SA, including mining and manufacturing production, retail and wholesale trade sales, electricity generation, building plans passed and construction completed.

Stats SA will release its second-quarter GDP figures on September 3.

In another positive sign, the BankservAfrica Economic Transaction Index showed that South Africa had a better-performing second quarter.

It showed an improved level of economic activity from the first quarter of the year.

Stats SA reported last week that mining production fell by 1.5% year on year in May.

This was the seventh consecutive monthly decline in local mining output.

The drop was mainly due to declines in gold and diamond production.

“This sector has faced numerous challenges, including relatively high extraction costs, labour unrest, electricity supply constraints and policy uncertainty,” Bishop said.

“While the mining sector has been adversely affected by weakness in most global commodity prices, we assess that total mining output contributed positively to second-quarter GDP,” she said.

This followed a drop in mining output in the first quarter of the year due to Eskom power cuts.

May manufacturing production data issued last week by Stats SA increased by 1% year on year, said Jarred Sullivan, FNB economist.

“The manufacturing sector continues to be hampered by weak domestic demand and subdued confidence levels,” Sullivan said.


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August 18 2019