GDP shock as economy shrinks 2.2%, worst showing in nine years

SA’s economy shrank by a shock 2.2% in the first quarter of 2018 compared with the final quarter of last year – with the surprisingly poor performance due to a plunge in the agricultural sector of 24.2%.

This is the largest quarterly fall since the second quarter of 2009. Economists had expected a contraction of 0.5% quarter on quarter.

The rand reacted immediately and dramatically, weakening by about 10c against the dollar shortly after 11.30, to about R12.65. 

SA's gross domestic product (GDP) grew 0.8% compared with the same quarter in 2017, well below a Trading Economics consensus forecast of 1.9%.

Mining fell 9.9%, manufacturing 6.4% and construction 1.9%, Statistics SA said on Tuesday.

The decline in the manufacturing sector was largely due to the petrochemicals and metals subsectors.

Government services grew 1.8% and financial services 1.1%.

Government services had been bolstered by activities conducted by the Independent Electoral Commission in the first quarter, statistician general Risenga Maluleke.

Economists had expected mining and manufacturing to weigh on first-quarter GDP performance due to, among other factors, a stronger rand and investors' continued caution, despite improved sentiment since Cyril Ramaphosa became president of SA.

Uncertainty over black economic empowerment policy and mine stoppages were cited as additional actors that held back mining.

Agriculture was the wildcard expected to lift the overall figure, as SA continues to recover from drought conditions.

“In consumption-driven economies like SA, it is not unusual for a weak first-quarter GDP print given the high base set in the final quarter of the previous year,” said FNB chief economist Mamello Matikinca.

Outlook

Analysts expect consumers to be hard pressed for the rest of 2018, as the effect of April’s tax hikes and increased fuel costs seep into the market.

Broad consensus among analysts was that growth would accelerate towards 2%, amid improved global economic conditions and due to positive sentiment emanating from SA’s escape from full junk status.

“For the year as a whole, however, we expect growth to pick up from the second quarter and accelerate in 2018 to 1.9% year on year from 1.3% year on year in 2017 as cyclical factors linked to higher sentiment levels, improved private sector investment and the impetus from global demand increasingly take effect,” said Investec economist Lara Hodes.