SA unlikely to grow by more than 1% this year

Reza Hendrickse CFA, Portfolio Manager at PPS Investments.

Our initial optimism that the second quarter GDP growth would be positive waned as the year progressed with no significant improvement in higher frequency economic data being evident.

The contraction in the second quarter GDP growth is therefore not entirely surprising to us and reflects the tough environment which many South African listed companies have alluded to in recent results. Not only has GDP growth contracted (-0.7%) for a second consecutive quarter this year, but the unexpectedly weak first quarter number was also revised lower (to -2.6%). Agriculture is clearly battling and was the largest detractor from growth this quarter. The second quarter GDP was a tough number with little indication of increased investment or spending and now puts South Africa into a technical recession. Land reform has undoubtedly put a damper on business confidence, while increased consumer spending is not yet coming through despite the uptick in consumer sentiment seen in other surveys. It looks unlikely that SA will grow by more than 1% this year, and the Medium-Term Budget in October will once again face tough choices.