Picture: 123RF/onypix
Picture: 123RF/onypix

Gloomy data from the Reserve Bank on Thursday underscored the fragile nature of SA’s economic recovery, with new private sector capital spending falling almost 10% in the first quarter of 2019.

Gross fixed capital formation — a gauge of new investment into the economy — fell 4.5% in the first quarter of 2019 from the prior three months, the Reserve Bank said on Thursday, as SA’s economy extended its weakening cycle to the 67th month in a row.

The decline of new investment shaved 0.9 percentage points off  SA’s economic growth rate in the quarter, the Reserve Bank’s quarterly bulletin showed on Thursday. Analysts said this showed the extent to which SA’s economy will struggle to push past 1% growth this year.

The downward trend in SA’s business cycle — a measure of the level economic activity compared with a long-term average — has continued since the end of 2013. According to Bloomberg, this is the longest downturn since 1945.

A pick-up in public capital expenditure offset a massive decline in private sector spending a little.

Real gross fixed capital outlays by private business enterprises receded 9.8% in the first quarter of 2019 from the previous quarter, while public corporations increased their spending 16% in the period, snapping a seven-quarter streak of declines.

Source: Reserve Bank Quarterly Bulletin
Source: Reserve Bank Quarterly Bulletin

The improvement in public sector spending came off a low base, however, and was due to a strong investment drive by state-owned companies, despite financial and governance challenges, the bulletin read.

The decline in private sector spending was consistent with the subdued economic activity and depressed business confidence during the period.

SA’s economy is now stuck in a range between 1% growth and 1% contraction, and the effects of low business confidence seem to be reinforcing the slowdown, said SA Institute of Race Relations chief economist Ian Cruickshanks.

“The increase in spending by public sector enterprises will not be sustainable, given that sources of funding are drying up and spending will be minimising soon,” Cruickshanks said. It is also not clear where this spending is taking place, he said.

Poor capital spending is the main reason SA is likely to contract by 0.2% in 2019, said NKC economist Jacques Nel, adding there was some reason to be cautiously optimistic President Cyril Ramaphosa's push for structural reforms will pay off, although this could take some time to result in higher growth.

“The reality will most probably be one where the economic performance gets worse before it gets better,” Nel said.

SA’s economy contracted a shock 3.2% in the first quarter, compared with the last quarter of 2018, with the Reserve Bank's bulletin showing that this was largely due to a sharp decrease in exports.

The decline in exports shaved 7.5 percentage points off SA’s growth rate, although this was offset by increased domestic expenditure, notably by the government.

SA’s trade surplus narrowed from R71.8bn in the fourth quarter of 2018 to R43.0bn in the first quarter of 2019, as the value of net gold and merchandise exports decreased more than that of merchandise imports.