There was an immense sigh of relief when the GDP numbers came out this week, showing 2% growth quarter-on-quarter. True, it wasn’t a sign that all our prayers had suddenly been answered. But amid mounting pessimism over the looming ANC elective conference, and the gathering sense of doom over SA’s financial status, the GDP numbers show that, at least, the economy isn’t an entirely spent force just yet.
This fillip means the odds of SA hitting 1% GDP growth for the full year are now pretty good — provided the fourth quarter is not a washout.
The risk, however, is that growth could weaken in the final quarter due to a toxic brew of last month’s ratings downgrade, SA’s fiscal deterioration and uncertainty over the ANC’s elective conference.
But, just maybe, this won’t happen. Maybe the economy is in slightly better shape than most economists thought.
The stellar performance in the third quarter, the fact that consumers seem to be showing signs of resilience, and the upward revisions which Stats SA made to its historical GDP figures make this all seem possible now.
The consensus has shifted to price in growth of 1% over the full year. If that happens, it’ll be a huge help to finance minister Malusi Gigaba, who has budgeted for a R50bn revenue shortfall based on an anticipated growth rate of 0.7%.
It must be said that 1% isn’t exactly the stuff of dreams for an emerging market. Given SA’s population growth of 1.7%, the average South African will see his quality of life decline, the economy won’t create enough jobs, and poverty will rise.
But for an economy that has, in recent months, experienced an assault on the independence of the Reserve Bank, a brain drain at national treasury, and the loss of its investment-grade credit rating, any good news is worth celebrating.
Among the positive GDP surprises were that:
The manufacturing sector posted its best performance in five quarters;
The agricultural sector grew by 44.2% quarter-on-quarter, twice as fast as expectations, thanks to a bumper summer harvest;
The mining sector registered its third consecutive quarter of positive growth due to strong commodity prices and a weaker currency; and
After several quarters of weakness, private consumption and fixed investment both grew strongly with an increasing share of this demand met internally — not just through imports.
The government sector shrank due to "declining levels of employment".
What was clear was that third-quarter growth was almost entirely driven by the agriculture, mining and manufacturing sectors. Strip them out, and GDP growth would have been just 0.5%.
Still, it’s encouraging that agriculture is likely to remain on a positive growth path as weather forecasts remain favourable and farmers are set to increase their plantings next season. The outlook for mining also appears positive based on firmer commodity prices.
However, not all economists are rushing to revise their growth forecasts. The political situation remains extremely fluid.
For the economy, there are two outcomes: a bad one in which the status quo prevails, and a good one in which the ANC elects a reformative leadership which enacts pro-growth reforms.
Muddling along with slow or stagnant growth won’t cut it any more. If SA cannot raise its growth rate above 2%, it won’t be able to create jobs, and fiscal and social pressures will mount, creating an increasingly divided society. Now is the time for ANC members to do the right thing.