Picture: 123RF
Picture: 123RF

SA has been dealt another blow with news that the economy contracted again in the third quarter, and that the country’s trend growth appears to be flagging.

After rebounding by a revised 3.2% quarter on quarter (q/q) in the second quarter of 2019, following a 3.1% contraction in the first quarter, the economy contracted by 0.6% q/q between July and September — confounding economists, most of whom had expected growth of 0.8%.

The big undershoot will have many economists scrambling to revise down their whole-year forecasts. For Capital Economics’ John Ashbourne, it confirms that the pace of SA’s trend growth has "slowed markedly". The last time SA posted four straight quarters of growth was in 2013.

The Reuters consensus is for growth to average 0.6% this year; the National Treasury is looking at 0.5%. The consensus is likely to drop to at least 0.5%, but this assumes growth will lift in the final quarter. A worse outturn will have a knock-on effect on the fiscus, since it implies revenue collection will disappoint.

The most striking feature of the GDP results is that economic weakness is broad-based, with only four out of 10 subsectors managing to grow during the quarter. Among these was government services (up 2.4% q/q), thanks to more hiring at a time when it is trying to trim the bloated public service.

Other positive contributors were the trade sector (up 2.6% q/q) and finance (up 1.6% q/q), which helped the tertiary sector grow by almost 1% q/q. However, the primary and secondary sectors contracted by 5.5% q/q and 3.8% q/q respectively.

Mining was down 6.1% q/q, driven by lower platinum, coal and iron ore production. This cut half a percentage point off overall third-quarter growth. Manufacturing (-3.9%) did the same, as did the transport, storage and communications sector (-5.4%), mainly due to a slowdown in freight and passenger transport. This was the transport industry’s biggest quarterly fall since 1993.

Agriculture dropped 3.6% q/q, its third consecutive quarterly contraction, while the construction industry (-2.7% q/q) posted its fifth consecutive quarterly contraction.

Measured from the expenditure side, GDP shrank 0.3% q/q. Household final consumption grew only 0.2% q/q, down from 2.6% in the second quarter.

The only silver lining was that gross fixed investment grew 4.5%, supported by strong imports of machinery and computer equipment. This is the first time since 2015 that the category has risen for two consecutive quarters.

This wasn’t enough to offset weakness elsewhere, says Ashbourne, and though it suggests that firms are more willing to invest it is too early to call it a trend.