SA’s economic performance deteriorated meaningfully in the fourth quarter of 2008
The Numbers
GDP Q4 2008 (QoQSAA): -1.8 % compared to 0.2% in Q3
GDP Q4 2008 (YoY): 1.0 % compared to 3% in Q3 2008
GDP Full year: 3.1 % compared to 5.1% for 2007
Introduction
South Africa’s economic performance deteriorated meaningfully in the fourth quarter of 2008 registering the first contraction (Quarter on quarter growth seasonally adjusted and annualized - QoQSAA) since the third quarter of 1998. After registering a positive growth trend (QoQSAA) for fourty quarters, the trend turned negative contracting by 1.8% in the fourth quarter. However, on a year on year basis, the fourth quarter still posted growth of 1% contributing to economic growth of 3.1% for 2008.
Weights
Statistics South Africa made some significant changes to the growth rates of some sectors of the economy contributing almost 40% to GDP. These changes affected the weights (relative size in the economy) of these sectors, which in turn has an influence on their respective contributions to the economy’s growth/contraction rates. For example, the QoQSAA growth rate of the agricultural sector for the third quarter was adjusted upward to 31.6% from 16.1%, whilst the contraction rate of the manufacturing sector was revised from -8% to -8.8%. As a result the agricultural sector’s weight increased to 2.7% from 2.5% whilst that of the manufacturing sector decreased from 16.4% to 16%. The government’s size also increased from 12.4% to 12.6%.
Sector growth
The primary sector returned to a positive growth trend from -0.5% in the third quarter to 5.9% in the fourth quarter. Contrastingly, the secondary sector contracted further from -2.6% to -15%. The tertiary sector’s growth trend accelerated from 1.5% to 2.4%.
Table 1: Economic growth weakens dramatically in the fourth quarter
(%)
Q3 Q4 Sector Q3 (QoQSAA)
% Change Q4 (QoQSAA)
% Change Q4 (QoQSAA)
% Contribution Q4 (YoY)
% Change
2008 (YoY)
% Change
7.6
7.7
Primary sector
-0.5
5,9
2.5 2.7 Agriculture, etc. 31.6 16.7 0.5 15.4 18.8 5.1 5.0 Mining, etc.
-8.8 0.4 0.0 -4.9 -6.5
22.0
21.8
Secondary sector
-2.6
-15.0
16.4 16.0 Manufacturing -9.4 -21.8 -3.5 -4.8 1.2 2.0 2.0 Electricity, etc. 3.0 -2.7 -0.1 -3.3 -1.2 3.6 3.8 Construction 15.0 10.8 0.4 12.2 13.9
61.4
61.8
Tertiary sector
1.5
2.4
13.8 13.6 Retail, etc.
-6.9 -0.2 0.0 -1.2 0.5 10.0 10.1 Transport and communication 4.5 1.8 0.2 3.7 4.0 19.9 20.1 Finance, etc. 3.2 3.0 0.6 3.0 5.0 12.4 12.6 General government 5.2 4.5 0.6 4.2 3.9 5.3 5.4 Personal services 6.3 2.8 0.2 3.0 4.1
91.2
91.2
Total value added
0.3
-1.7
-1.5
1.1
3.2 8.8 8.8 Taxes less subsidies -1.0 -3.1 -0.3 0.0 2.1 GDP at market prices 0.2 -1.8 -1.8 1.0 3.1
Three subsectors with a combined weight of 31% contracted on a QoQSAA basis in the fourth quarter. A severe contraction of 21.8% in the manufacturing sector, as well as contractions of 2.7% in the electricity sector and 0.2% in the retail sector combined to register a negative growth trend for the fourth quarter.
However, strong though slower growth in the agricultural (16.7%) and construction (10.8%) sectors continued to underpin growth, whilst the general government (4.5%) and the financial services subsectors (3%) also held up well.
On a year on year basis, four subsectors (mining, manufacturing, electricity and retail) contracted in the fourth quarter, whilst two (mining and electricity) contracted in 2008 compared to 2007. The agricultural, construction, financial, transport & communication and general government subsectors all performed much stronger to register a growth rate of 3.1% in 2008.
Implications
Anecdotal evidence suggests that some subsectors such as mining and manufacturing weakened further in the first quarter.
However, it is not a certainty that South Africa will indeed register a technical recession (two or more consecutive quarters of negative growth). This is due to the severe contraction in fourth quarter growth which provided a very low level of QoQSAA GDP in the fourth quarter. Thus, for the economy to register another quarter of negative growth, the manufacturing sector needs to contract at the same pace, whilst other performing sectors must grow much slower. Furthermore, stronger growth in government expenditure will underpin growth.
However, should the international economy weaken much further, the local economy will feel the pain. As a result, it is expected for the repo rate to be reduced by another 250 basis points during the course of this year.
