EDITORIAL: Growth boost welcome, but …
‘The bad news is that investment spending crashed, which means any growth momentum will struggle to be sustained’
The latest economic growth figures from Statistics SA will provide a brief but welcome boost to the market. But sadly, they are unlikely to signify that the economy is about to pull out of its slump and start generating jobs and improving lives anytime soon.
At least the economy is out of recession, as economists define it. After two quarters of negative growth, it not only turned positive in the second quarter of 2017 but beat expectations, growing at 2.5% against the market’s consensus forecast of 2.1% to 2.2%. That’s the quarterly rate, which is flattered by "base effects" — in other words, the previous quarter was so bad that even if the economy had been no worse compared with that, the number would have been neutral to positive.
On an annual basis, comparing 2017 with 2016, the growth rate was 1.1%. If it were to be sustained for the full year, SA would be looking at a growth rate better than 2016’s and better than the 0.5% or so that many had forecast. But how likely is that? Economists will be crunching their numbers anew, but the mix of growth in the second quarter suggests that the wheels could well still fall off for the full year.
The rain came to the rescue in the second quarter, with the tiny agriculture sector bouncing more than 33% to contribute 0.7 percentage points of the 2.5% quarterly growth rate. That is great news for food prices, farmers and the economy as a whole. But this is to some extent those base effects striking again. Agriculture is coming off a very low base, so we cannot expect it to continue at this level. That’s particularly so if SA’s policy makers keep undermining confidence and investment in the sector with uncertainty about land-reform measures.
Mining also contributed to the turnaround, adding a further 0.3 percentage points.
But the most important and welcome news was the turnaround in the tertiary sector, particularly in financial services, which in the first quarter went negative for the first time anyone could remember — a key reason why the recession caught many economists by surprise. Happily, financial services, which makes up one fifth of the economy, recovered in the second quarter to grow 2.5% and contribute 0.5 percentage points to the overall growth rate.
A big part of that would have been the consumer recovery. Household spending was up 4.7% after a negative quarter, with consumers starting to buy clothing and furniture again. So, altogether, the latest numbers show the stalwarts of SA’s economy — such as financial services and consumer spending — coming out of an unprecedented recession.
However, the bad news is that investment spending crashed, which means any growth momentum will struggle to be sustained, because SA is simply not investing in the new capacity or even the maintenance capital needed to support growth and job creation. Investment fell 2.6% on a quarterly basis, which means that only three of the past eight quarters have been positive and then not by much.
So, while the second-quarter GDP growth figures are more cheerful than the first, a lot of the turnaround comes from base effects and from volatile sectors such as agriculture and mining, and that is in the politically contested environment of 2017, in which growth is at risk anyway from further hits to confidence and capital flows.
It is a measure of how low our standards have become that even a 1.1% growth rate, if sustained, would be a big plus. Even at this unlikely level, however, SA’s economic growth would still be falling well behind its population growth rate (about 1.7%), so everyone on average would still be getting poorer and joblessness would still be rising.
Technically, that might not be a recession. But it certainly feels like one. And without political change, the economic change needed to turn that around is likely to remain elusive.