ECONOMIC WEEK AHEAD: GDP growth for 2018 and the Nersa tariff decision make for an exciting week
Business wants Eskom tariff hike proposals rejected because it would cost jobs and reduce production
The SA economy’s full-year performance will be revealed on Tuesday when StatsSA publishes the remaining GDP data for 2018 but, as important, will be the outcome of the energy regulator’s multi-year electricity tariff decision on Thursday.
The consensus expectation is that the economy posted growth of only about 1.2%-1.8% quarter-over-quarter in the fourth quarter, a considerable slowdown from the post-recession rebound of 2.2% quarter-over-quarter achieved in the third quarter.
However, forecasting quarterly GDP growth is tricky since economists can capture only 40% of the required data upfront, so have to model the rest.
“There is even greater forecast risk for the fourth-quarter GDP [number] given that this is when StatsSA implements substantial data revisions,” explains Citi Bank economist Gina Schoeman.
She expects fourth-quarter GDP to be 1.1%. If so, GDP growth for 2018 will come in at a desultory 0.7% compared to the 1.3% achieved in 2017.
Capital Economics economist John Ashbourne is also expecting growth of about 1% quarter-over-quarter in the final quarter.
Though worse than the third quarter, this would still be a “reasonably strong” result for SA, he says. “We think that conditions will improve this year due to easing inflation, improved confidence and the passing of disruptions in the agricultural sector.”
Intellidex’s Peter Attard Montalto recently scaled back his 2018 GDP forecast from 0.8% to 0.7% year-on-year — and his fourth-quarter forecast to 0,6% quarter-over-quarter — after every piece of high-frequency data surprised to the downside in December.
However, the data looks more positive when viewed on a quarterly basis which aligns with the way GDP is measured.
For though mining output fell by 4.8% year-on-year in December and manufacturing output was barely positive, the mining sector actually performed slightly better over the quarter than it did previously, while the slowdown in manufacturing and retail was modest, notes Ashbourne.
That said, mining output still contracted in the final quarter, by -3.9% quarter-over-quarter compared to -9% quarter-over-quarter previously.
“The mining sector has been plagued with high input costs, low commodity prices, strikes, slowing global growth and load-shedding, all but confirming an uninspiring contribution to GDP,” says First National Bank chief economist Mamello Matikinca-Ngwenya.
Nevertheless, she is decidedly more bullish than most, forecasting fourth-quarter GDP growth of 2.2% quarter-over-quarter , partly on firmer consumer spending and an uptick on bank lending.
The National Energy Regulator of SA (Nersa) will announce SA’s new electricity tariffs on Thursday. It has traditionally refused to grant Eskom’s full tariff requests which this time average 16% a year over the next three years.
Business has argued strongly for the regulator to reject Eskom’s application. According to the Minerals Council, if Eskom succeeds, 40% of mining, refining and smelting companies will be lost; annual gold mining output will fall from 132 tons to 20 tons; and 150,000 direct jobs could be shed across mining, smelting and refining.
SA’s current account balance for the final quarter of 2018 will also be released on Thursday. It is likely to show a smaller deficit given the R14bn trade surplus that was achieved in the fourth quarter on slower imports.