ECONOMIC WEEK AHEAD: Quarterly GDP may have shrunk by 1.5%
SA’s consistently weak GDP data will be in focus as the economy is expected to have contracted in the first three months of 2019.
The consensus is for a contraction of 1.5% in the quarter as mining, manufacturing and retail sales disappointed amid weaker business and consumer confidence and severe load-shedding. This follows positive growth of 1.4% in the fourth quarter of 2018.
GDP data will be released on Tuesday.
The manufacturing sector, one of the pillars of the economy, took a hit in the first quarter as global and domestic demand stuttered and load-shedding was ramped up to stage four, removing 4000MW from the electricity grid.
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Elize Kruger, senior economist at NKC African Economics, said growth in the sector was muted during the quarter. Manufacturing contracted 9.1% compared with positive growth at the end of 2018.
“This will be the worst performance in the manufacturing sector since the global financial crisis,” Kruger said.
Headwinds in the next months include higher electricity tariffs, further potential load-shedding, low business confidence and domestic and global demands, she said.
The mining sector is forecast to have continued its decline and contracted 12.7% in the first quarter of 2019. Growth was hampered by load-shedding as well as a gold sector strike that started in November and ended in April.
Retail sales performance was dismal during the first quarter. Consumer spending was affected by rising fuel costs and a higher tax burden, while load-shedding forced many smaller retailers to temporarily shut their doors. This weighed on February and March retail figures.
Kruger, who forecast a contraction of 1.7% in retail sales for the first quarter, said: “The return of load-shedding could again put additional pressure on smaller retailers going forward, while consumer demand is forecast to be hampered further by fuel price hikes, low confidence and higher income tax.”
Declines in the electricity sector are also expected, with the construction sector likely to remain in contractionary territory. The transport sector, which is linked to mining, manufacturing and retail, is also expected to take strain. Low confidence levels would also depress expenditure and investment in the economy, which is expected to grow at less than 1% in 2019.
Another significant event on Tuesday is the inaugural media briefing by Edward Kieswetter, the new SA Revenue Service commissioner, ahead of the start of the personal income-tax filing season in July.
Other important data releases this week include Monday’s Absa-sponsored SA manufacturing purchasing managers index (PMI), carried out by Stellenbosch University’s Bureau for Economic Research. The Standard Bank PMI, compiled by IHS Markit for SA, will be published on Wednesday.
FNB chief economist Mamello Matikinca-Ngwenya forecast a “milder higher print in May” for the Absa PMI, which registered 47.2 in April. A reading of 50 and above indicates expansion. Matikinca said the dissipation of load-shedding during the month “may have provided support to production”.
Other data to be released this week includes new-vehicle sales for May on Monday, the SA Chamber of Commerce and Industry business confidence index for May on Wednesday and the balance on the current account on Thursday.
The Reserve Bank will round off the week’s data with a statement on the position of gold and foreign exchange reserves in May 2019.