EDITORIAL: Growth — is this the turning point?
It turns out the recession was also milder than previously thought, which provides a springboard for the economy to exceed the consensus forecast of 0.8% real GDP growth for the whole year
It’s about time SA got some good news. This was delivered in spades this week, as the economy exited the recession with a resounding bang in the third quarter. The silver lining from this week’s announcement is that it turns out the recession was also milder than previously thought, which provides a springboard for the economy to exceed the consensus forecast of 0.8% real GDP growth for the whole year.
It’s some reprieve after the gloom set in earlier this year, when it emerged that growth had contracted in the first and second quarters. It slashed confidence in President Cyril Ramaphosa’s ability to pilot the country’s economic revival.
Since then, the virtuous cycle — where rising business and investor confidence was supposed to spark fixed investment and job creation — has failed to materialise. Instead, the nascent optimism has run aground on confidence-sapping issues like land expropriation and the fightback by the Zuma-aligned camp.
Now it turns out this pessimism may have been overdone. The better-than-expected GDP data for the third quarter shows that the economy expanded by 2.2% quarter on quarter, compared to an expectation of 1.6%.
Manufacturing was the key driver of the recovery, staging a strong turnaround from a 0.6% contraction in the second quarter to a 7.5% expansion during the third quarter. Agriculture and household spending also held up well.
Read together, this relatively upbeat data bolsters the consensus view that SA is poised for a modest recovery. Indeed, it now seems possible that the growth rate could even double to at least 1.6% in 2019, as optimists hope.
It’s also good news for the National Treasury, which is banking on an economic upswing to avoid having to hike taxes significantly again next year. Hopefully, this will give the beleaguered SA consumer more breathing space in the months ahead, especially if petrol prices continue to fall.
A boost in revenue would also improve SA’s debt dynamics, supporting the country’s credit rating which, at this point, is hanging by a thread.
It may seem we’re getting ahead of ourselves. After all, the third-quarter figures are flattered by comparison with the weak preceding quarter, and the preliminary data does suggest that conditions remain tough in the fourth quarter.
Eskom, as usual, remains an albatross around SA’s neck. The resumption of load-shedding is, not to put too fine a point on it, an absolute disaster, and will surely constrain growth. There are also worrying signs of ebbing confidence in the agriculture sector on land expropriation fears.
This is why Business Unity SA reacted to the GDP data by urging the social partners not to be lulled into a false sense of complacency by the improvement. Mining, construction, electricity and water are sectors that remain in distress.
But what happens next in the global economy will also matter a great deal. The hope for SA is that the US economy will come off the boil next year, without the Fed having to hike rates aggressively. This would cause dollar weakness, and provide more favourable conditions for emerging markets. This could in turn lead to a firmer rand and a more benign domestic inflation outlook, removing the need for further rate hikes in SA next year.
Also, the consensus seems to be that the ANC will win a decent majority in the 2019 elections, emboldening Ramaphosa to make more far-reaching pro-business policy calls.
There is, admittedly, very little room for error by SA’s policymakers. But if they could just get a few things right — like the spectrum auction and Eskom’s finances — the economy could start rewarding them with heartening growth.