picture: 123RF/nirut123rf
picture: 123RF/nirut123rf

The weak state of the SA economy is likely to be confirmed this week by a slew of important data releases. Most significant will be the third-quarter GDP growth numbers, with some economists fearing that SA is about to suffer another quarterly contraction.

Real GDP growth rebounded to 3.1% quarter on quarter in the second quarter — a huge turnaround from the first quarter’s 3.1% contraction when load-shedding and strikes took a heavy toll. This has raised the statistical base going into the third quarter, making it harder for the economy to sustain an upward trend.

Given the 6.4% contraction in mining and the 3.8% contraction in manufacturing during the third quarter, coupled with zero retail sales growth (which accounts for about a third of household consumption), fears are high that third-quarter GDP growth could be nearly zero, or even negative.

The industrial sector and mining are being affected by the slowdown in global growth and trade. This is being worsened by domestic constraints, including an insufficient electricity supply.

Consumers are also in bad shape. For most of the year, subdued household credit dynamics, rising unemployment, low wage growth and depressed consumer confidence have reduced consumers’ willingness to spend.

The Reuters consensus for third-quarter growth has declined from 1.3% quarter on quarter in September to just 0.8% quarter on quarter now, though there is a big gap between the lowest forecast of -0.1% and the most bullish of 2.2%.

“There is always some uncertainty about the overall GDP forecast, particularly from the small but volatile agricultural sector and the many important services sectors for which there are no high frequency data,” explains Absa economist Miyelani Maluleke.

Absa has lowered its third-quarter forecast to 0.1% quarter on quarter from 1% quarter on quarter, which brings its full-year real GDP growth forecast to just 0.4%, down from 0.6%.

Citibank economist Gina Schoeman is among the most bearish. She believes the economy contracted by 0.5% during the third quarter. If correct, the economy is likely to grow by just 0.4% on her estimates in 2019, down from 0.8% in 2018.

The Reuters consensus is for growth to average 0.6% for the year, rising to 1.1% in 2020 and 1.4% in 2021.

Also due out on Monday is the Absa Purchasing Managers’ Index (PMI), which provides a good gauge of the health of the manufacturing sector, and, on Wednesday, the IHS Markit whole-economy PMI.

So far in 2019, the Absa PMI has ranged between 46 and 48 index points. It fell just above the neutral 50-point mark in only January and July. In October it was 48.1 and another dismal reading is likely for November.

The IHS PMI registered 49.4 in October, suggestive of an overall contraction in economic activity.

Maluleke expects the whole-economy PMI to continue to track just below 50, where it has been for the past six months.

“If you look at the Reserve Bank’s leading indicator it’s clear that the cycle just isn’t picking up,” he says.

“There is no reason to expect a meaningful change in November.”