SA GDP contracts in 4Q19, confirming a technical recession for 2H19
The fourth-quarter 2019 SA GDP growth contracted by 1.4% q/q on a seasonally adjusted annualised basis, highlighting that the economy endured a technical recession during 2H19.
This outcome marked the third (out of four) quarterly contraction in 2019– reflecting the adverse impacts of load-shedding. Q4 growth was significantly worse than our (-0.1% q/q) and Bloomberg expectations (-0.2%). More concerning was that the third-quarter growth number was revised lower to -0.8% q/q (from -0.6% previously). This brings the 2019 full-year GDP growth to a tepid 0.2%, from an already weak 0.8% in 2018.
Across the sectors contractions in output were broad-based, with only finance, mining and personal services adding positively to the growth number. In the primary sector, agriculture contracted by 7.6% q/q mainly as a result of a decrease in horticultural products and field crop production. By contrast, mining increased by 1.8%, primarily due to increased gold, platinum group metals and iron ore production.
Contractions were evident in all secondary sectors with manufacturing decreasing by 1.8% q/q as seven out of the ten divisions had negative growth, with the largest detractors being automotive & transport followed by wood products & publishing. Unsurprisingly, utilities contracted by 4% as a result of increased load-shedding in 4Q. Declines in quarterly volumes for residential and non-residential buildings facilitated the 5.9% contraction in construction.
The tertiary sector was also uninspiring, with three out of the five sectors contracting. Decreases in accommodation, motor trade and wholesale trade resulted in retail contracting by 3.8% q/q. Decreases in both land and air transport, as well as support services, meant transport declined by 7.2%. Government declined by 0.4% due to lower employment numbers in higher education institutions, as well as fewer jobs in the national and provincial departments. Encouragingly, within the tertiary sector, the finance and personal services sectors increased by 2.7% and 0.7% respectively. The former is a result of increased activity in business services, financial intermediation and real estate.
From an expenditure perspective, growth in household consumption expenditure (HCE) recovered to an increase of 1.4% q/q (saar), after a mere 0.3% increase in Q3. The main contributors to HCE were expenditure on clothing and footwear (0.5ppt); the “other” category (0.4ppt) and household furnishings and equipment (0.3ppt). Expenditure on transport was the only detractor from GDP growth during the quarter (-0.5ppt). The much-welcomed improvement came against the backdrop of weak disposable income growth, low consumer confidence and a persistently high unemployment rate.
Government expenditure fell into negative territory (-0.2% q/q), after moderating to 1.4% in Q3. This decline came on the back of a decrease in government employment during the quarter. It was also in line with the weakness in government finances, which we expect to deteriorate over the foreseeable future. To this end we expect government expenditure to remain under pressure.
Gross fixed capital formation plunged by 10% q/q (saar). Although extreme, the decline was in line with our expectation of a deterioration in private fixed investment. Contractions in investments were evident across all asset types and organisations. Notably, the contraction in private sector fixed investment (-10.3% q/q, subtracting over 7ppt from total fixed investment) fell at the fastest pace in four years. In the previous GDP print, we highlighted our view that the positive momentum (attributed mainly to private sector fixed investment) was related to the replacement cycle, which likely continued in Q3. Therefore, a slowdown in private sector fixed investment was in sight.
Net trade contributed positively to overall growth (3.3ppt), after exports of goods and services increased by 2.3% q/q (increased trade in precious metals and stones) and imports contracted by 8.5% (mainly driven by a downturn in imports of machinery and equipment, as well as vehicles and transport equipment). Although this positive contribution is encouraging, the underlying detail is uninspiring especially when compared to the Q3 print. The performance in both exports and imports was relatively poor, highlighting weaker external and domestic demand. Inventory drawdowns were evident mostly in the mining and trade sectors.
Today’s print leaves GDP growth at just 0.2% for the full year of 2019, which is more disappointing than the still-low 0.8% print for 2018. Looking forward, we see material downside risks to our 2020 forecast of 0.6%. Severely low confidence levels, load-shedding and the disruptions to supply chains and tourism from the global spread of COVID-19 cloud SA’s growth outlook. Nevertheless, the low inflation (and by implication, interest rate) environment, combined with the tax relief from the 2020 February Budget Speech could provide auxiliary support to household spending.
