GDP Growth – A Different, But Realistic Perspective

Introduction

In a sea of stormy economic indicators it is easy for analysts to lose sight of the real economy.

Most of analysts’ focus will be on the 0.2% quarter on quarter seasonally adjusted and annualized growth rate (QoQSAA) achieved in the third quarter. However, equally important is the 3.7% growth rate registered during the first nine months compared to the same period last year (YoY).

Both numbers are important. They tell different stories. However, the tale remains the same.

Whereas the QoQSAA number shows the most recent tempo of economic growth, which slowed markedly from the 5.1% in the second quarter, the YoY number shows that notwithstanding all the problems experienced this year, 2008 will still be an improvement on the high level of Gross Domestic Product achieved in 2007.

However, looking at the trends, both indicate a cooling in the economy. Important though is that both shows positive growth indicating that an economic recession will most probably be avoided.

 

Sectoral growth

Focusing on the YoY growth for the first nine months, analysis shows that in order for the economy to register 3% growth this year, the YoY growth rate for the fourth quarter should be 0%. And to register a growth rate of 3.5% the YoY growth rate should be 2.8%. Both are achievable though a 3% growth rate seems more attainable.

The analysis in the above table shows that two sectors, namely mining and electricity are in a recession. Though the retail sector is closing on negative growth, it can avoid a recession. Though quarterly manufacturing numbers show a shrinking sector, the growth rate for the first nine months is still 3.33% stronger than the same period a year ago.

Looking at the individual sectors, it was again the agricultural and construction sectors that starred. The growth rate of 18.5% during the first six months in the agricultural sector was followed by a 16.8% growth rate for the first nine months. Though indicating somewhat slower growth in the third quarter, it still points to buoyant conditions.

As for the construction sector, talk was rife of an investment recession due to some investment projects cancelled by the private sector - especially in the mining sector. The most recent growth numbers and continuation of state investment will force private sector investment forward, though at some slower pace.

What is also significant is the robust performance of the financial and business services sector. Though the growth rate over nine months slowed to 5.8% from the 6.5% over six months, being the largest sector in the economy it added strong support to the growth rate.

The transport and Communications sector is also showing resilience with a continuation of growth rates of more than 4% thanks to the ongoing developments in the cell phone sector and construction activities demanding continuing transport services.

Prospects

The immediate prospects (fourth quarter) will roughly be the same as for the third quarter. However, prospects of reductions in interest rates will support the trading, manufacturing and financial sectors; a good rainy season will again benefit the agricultural sector; the improving electricity outlook will contribute to less disruptions and more production; the 2010 world cup and infrastructure programme of the government will drive private sector investment; whilst a weaker rand will somewhat offset the drop in commodity prices experienced by the mining sector. In addition, a slow but real recovery in world economic demand after the first quarter of 2009 will support the export sector.

As such, after the immediate slow down, the economy is due to pick up real speed from the second quarter of 2009 onward to register growth of 3% next year.

However, South Africa should in this time of turbulence shift is focus on the real fundamentals. This is increasing the economy’s production capacity by developing the skills of the employed and unemployed. Doing this will increase the economy’s growth potential thereby reducing the chance of increasing imbalances and actually reducing such imbalances.

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