A sign is displayed in the reception area of Goldman Sachs in Sydney, Australia. Picture: REUTERS
A sign is displayed in the reception area of Goldman Sachs in Sydney, Australia. Picture: REUTERS

Goldman Sachs has revised its expectation of SA's GDP for 2018 downwards from 2% to 0.8%, citing the "downside surprise" in the GDP number for the second quarter.

Most observers were expecting a modest improvement in GDP following a decline in the first quarter, but instead, the economy contracted by 0.7%, signaling that SA is technically in recession because of two consecutive quarters of negative growth.

"The downside surprise mechanically lowers our 2018 growth forecast from 2% year-on-year to 0.8% year-on-year," Goldman said in a note on Tuesday afternoon.

"On the expenditure side, domestic demand and, in particular, inventories exhibited significant weakness, while on the production side, agriculture contracted sharply (and to a lesser extent the tertiary sector).

"This contraction follows a 2.6% decline in output in the first quarter, placing the economy in a technical recession and calling into question our expectation for a cyclical recovery to become more entrenched."

The investment bank said that while one-off factors and seasonal adjustments could explain weakness in the first quarter, "these arguments hold less water for the second quarter".

The note said the implications for monetary policy were mixed. "On one hand, weaker growth implies a larger output gap and a weaker domestic inflationary impulse. On the other hand, as evidenced by the weakening of the rand in response to the news, some market participants may once again become concerned about risks of negative rating action."

It said that "on balance" the news was dovish and decreased rather than increased the liklihood of the Reserve Bank raising interest rates in the short term.


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