SA’s economy ended the year on a strong note — and the recession never happened
Encouraging data give weight to Finance Minister Nhlanhla Nene’s statements on South Africa's growth forecasts
Economic growth accelerated for the first time in four years in 2017, with continued strong recovery in agriculture, giving weight to Finance Minister Nhlanhla Nene’s statements that growth forecasts will probably be revised upwards.
Revisions to historical data in combination with a strong broad-based economic recovery in the fourth quarter of 2017 imply that SA’s economy is in better shape than previously thought.
GDP grew at a quarterly rate of 3.1% in the fourth quarter, well up on the 1.8% that economists expected, with the growth rate for the full year coming out at 1.3%, beating the Treasury’s estimate of 1% in February’s budget.
Treasury has forecast growth of 1.5% in 2018 rising to 1.8% in 2019, but Nene told journalists on Monday these numbers were expected to be revised higher in October’s medium-term budget. “We do not want to be overly optimistic, we want to be realistic, but we will revise these numbers upwards come the MTBPS [medium-term budget policy statement] on the back of improved investor and business sentiment,” Nene said.
The Presidency welcomed the GDP figures on Tuesday, saying while growth remained subject to a broad range of market factors, the improvement in the fourth quarter “suggests the economy is taking a turn for the better thanks to the efforts of all stakeholders in our economy”.
“The Presidency hopes that growth … will be sustained and that it will translate into meaningful job creation,” spokesman Tyrone Seal said.
The revisions to the data by Statistics SA also show that SA was not actually in a recession in 2017, based on two sucessive quarters of negative growth.
The fourth quarter of 2016’s growth was revised from 0.3% to 0.4%. Statistics SA also revised up its figures for GDP growth in every quarter of 2017.
Following the worst drought in a century, agriculture continued to recover, growing at a surprisingly high 37.5% during the fourth quarter to record growth of almost 18% for the year as a whole. Without it, the economy would have grown less than 1% for the year.
Agbiz economist Wandile Sihlobo said growth in agriculture was boosted by strong output in almost all the subsectors such as field crops, livestock and horticulture, and this was also clear from the recent trade data, where agricultural exports grew past the $10bn mark for the first time.
The fourth quarter also had increased activity in the wholesale and retail trade sector, which grew at 4.8% during the quarter, reflecting stronger consumer demand even though it contracted 0.6% for the year as a whole. Manufacturing also picked up to show quarterly growth of 4.3% despite declining slightly for the year as a whole.
“Recent political developments have triggered the start of a moderate recovery in business and consumer confidence, which we believe will foster renewed investment interest in the economy and should, in time, lift our economic growth more meaningfully,” said NKC economist Elize Kruger.
The stronger growth outlook also bodes well for SA’s credit ratings, adding to Nene’s statements that SA was unlikely to be downgraded by Moody’s Investors Service on March 23.
Political and policy instability hurt investor confidence markedly in 2016 and 2017, prompting credit ratings agencies S&P Global Ratings and Fitch Ratings to cut the nation’s debt to junk. The outlook, however, improved with the election of President Cyril Ramaphosa as ANC president.
Nedbank economist Busisiwe Radebe said Ramaphosa had moved fast to tackle corruption and restore good governance and fiscal discipline throughout the public sector. She said the 2018 budget gave content to Ramaphosa’s promises, setting SA on a path towards fiscal consolidation.
While a modest growth recovery was expected, the implementation of structural reform was necessary to propel the economy over the long term, said Momentum economist Sanisha Packirisamy.