Nicola Mawson
A shock 0.3% contraction in South Africa’s gross domestic product (GDP) for the third quarter of the year has stymied economists, who had expected marginal growth.
This puts at risk the possibility of the country meeting the International Monetary Fund’s latest projection of 1.1% for the full year.
The sharp GDP slump, mostly driven by a decline in the agricultural sector, didn’t unsettle the rand, which by 6.23pm was 0.24% stronger against the dollar at R18.11. GDP grew 0.6% last year, based on Statistics South Africa figures released in March.
Wichard Cilliers, the head of market risk at TreasuryONE, said the unexpected contraction marked a reversal from the revised 0.3% growth in the previous quarter, surprising economists who had not forecast the downturn. The agriculture sector saw the largest decline due to reduced activity in field crops.
The Statistics South Africa print, released yesterday, noted that the agriculture industry dropped 28.8% quarter-on-quarter. The transport industry decreased by 1.6% over the same period, while the finance sector was the largest positive contributor, increasing by 1.3%.
Economists from Absa, Investec and Old Mutual had been expecting a gain of between 0.3% and 0.5% for the quarter. However, the data did reveal that the third quarter of last year showed a worse contraction, at -0.4%.
Old Mutual chief economist Johann Els said the GDP number “was a shocker” as he had been expecting a similar gain to last month’s initial 0.4% figure. Agriculture, a volatile sector, is now down 74% on an annualised basis, he said.
Els noted, “We've increasingly seen much more volatile performance from the agricultural sector in recent years, so that volatility caused the third-quarter GDP number to drop into negative territory”.
Had the agricultural sector’s figure remained unchanged, GDP would have gained by 0.4% on a quarter-on-quarter basis, Els’ calculations showed.
Despite the negative print, Els noted that this doesn’t mean the economy is in a recession and the fourth-quarter number will likely rebound as prospects improve. Els has pegged full-year growth at 0.7% or 0.8% this year.
“Severe volatility in one sector can cause these types of jumps in overall GDP,” he explained. “The economy is no doubt still weak, but improving confidence will lift growth in the fourth quarter and into next year. What we've seen in the past, when you see such a big negative contribution from agriculture, it usually turns around into the next quarter. But the agricultural sector's performance has become much more volatile in recent times,” Els added.
Investec economist Lara Hodes said the outcome was “reflective of a largely subdued economy, which continues to face a number of challenges, notably on the logistics front”.
Earlier this week, Hodes anticipated GDP gaining 0.5% between the second and third quarters, and a seasonally adjusted 1.3% year-on-year due to increased economic activity, stable electricity, and increased sentiment. Investec expects the fourth quarter to show an improvement on the third-quarter contraction.
Thanda Sithole, FNB senior economist, said, “Achieving our, and the consensus, 1% growth projection for the year now appears increasingly unlikely.” Despite this, the bank is “broadly optimistic about the economy’s trajectory.”
North-West University Business School economist Professor Raymond Parsons said the number confirmed “the extent to which South Africa’s growth prospects remain vulnerable to negative factors such as adverse weather conditions, weakened exports and other lagging sectors.”
Parsons added that the negative growth trends confirm that seeking higher, inclusive, job-rich growth must remain government’s overriding priority. In early October, participants in the government and business partnership said they were chasing “stretch goals” for 3% GDP growth by 2025.
BUSINESS REPORT