Disappointing GDP a dose of reality
‘Ramaphoria’ may have buoyed moods in SA, but new data shows it hasn’t translated into economic growth
The shocking 2.2% contraction in real GDP growth in the first quarter suggests that more will have to be done to turn the positive sentiment engendered by President Cyril Ramaphosa’s election into economic activity.
The Bloomberg consensus was for first-quarter growth to slow by 0.5%, with forecasts ranging between -2% and 2%. The 2.2% fall, the largest quarterly decline since the global financial crisis, will likely cause some downward revision to full-year growth forecasts.
Strong base effects meant the first-quarter figure was never going to be robust. However, growth slowed in nearly every subsector, with only less weak activity occurring in the services sector thanks mainly to increased public sector employment.
"We view the poor first-quarter GDP performance as an unhelpful bump in what is still likely to be a slowly improving road for the SA economy," says BNP Paribas economist Jeffrey Schultz.
The fact that the slowdown was broad based "clearly highlights that the economy is not yet out of the woods".
The biggest disappointment was the fall in fixed investment, which slowed to 3.2% q/q from 7.4% previously. SA’s recovery is predicated largely on an acceleration in private fixed investment.
"Today’s downbeat figure will dampen some of the enthusiasm surrounding Ramaphosa," says Capital Economics economist John Ashbourne. "South Africans themselves were also optimistic ... but this ‘Ramaphoria’ does not seem to have translated into stronger spending."
Mining and agriculture exerted the biggest drag on growth during the first quarter. Agriculture contracted 24.2% q/q from a very high base, while mining growth slipped almost 10% on softer commodity prices and a stronger rand.
The same pressures hit manufacturing, which slowed by 6.4%.
Despite the disappointing data, SA’s 2018 growth outlook remains positive. The manufacturing purchasing managers’ index and new vehicle sales data for May suggest the economy is likely to perform better in the second quarter.
The consensus is that growth should climb above 1.5% y/y this year on sustained confidence, benign inflation, emerging policy certainty and improved private sector investment.