GDP growth: shock and awe
Economists are now scrambling to reduce their 2019 growth forecasts
The SA economy is in far worse shape than nearly everyone realised and could well be heading for its second recession in a year.
The consensus was that real GDP growth would contract by about 1% in the first quarter.
Instead, the latest Stats SA data shows it plummeted by 3.2% — its steepest quarterly contraction since the global financial crisis. On an annual basis, GDP growth was flat.
Economists expected severe load-shedding and the five-month mining strike to have hurt the economy in the first quarter, but underestimated how weak the consumer and overall business environment had become, as well as the chilling effect that low confidence continues to have on fixed investment.
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Economists are now scrambling to reduce their whole-year forecasts. The consensus real GDP growth forecast of 1.1% for 2019 is likely to shift below the bleak 0.8% recorded last year.
This will fuel SA’s social and fiscal problems, inviting further ratings downgrades.
The broad-based weakness in the economy, coupled with the steep drop in the May manufacturing purchasing managers index (from 47.2 to 45.4), suggests SA could even experience another technical recession (two quarters of negative growth).
Thanks partly to load-shedding, manufacturing exerted the biggest drag on first-quarter growth, slowing by 8.8% and shaving 1.1 percentage points off the total.
Power outages and strikes hit mining hard, deducting another 0.8 percentage points from overall GDP, while a surprising 13.2% contraction in agriculture took 0.3 percentage points off the headline number.
Household spending fell by 0.8% compared to 3.2% growth in the previous quarter, as low wage and employment growth combined with higher taxes and fuel and electricity costs started to bite.
Other alarming news was that SA’s exports decreased by 26.4% in the first quarter (a record low since 2009) and that, at -4.5% gross, fixed capital formation had a fifth consecutive quarterly decline, the longest contraction run in SA history.
"[This] result will underline the scale of the economic challenge facing President Cyril Ramaphosa. [He] will face increased pressure to push forward with his reform plans," says Capital Economics’ John Ashbourne.