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PPS Investments commentary on 2019 Q1 GDP growth

04 June 2019 Reza Hendrickse, Portfolio Manager at PPS Investments

Domestic growth languished in the first quarter, with the economy shrinking a massive 3.2% - more than double market expectations of 1.5%. Higher frequency economic data during the quarter had been pointing to renewed weakness, but conditions have proven far worse.


As expected, manufacturing and mining were significant detractors. Local conditions have been hamstrung by the weak consumer, which softer retail sales alluded to. Downbeat business conditions have weighed on manufacturing and has been evidenced by subdued business confidence, compounded by the electricity supply disruptions experienced during the period. In addition, SA has not been immune to the softer global growth environment, which appears to have impacted areas such as mining this quarter.

The volatile primary sector shrunk 11.4%, driven by the drop in mining and agriculture, while the drop in manufacturing led the 7.4% contraction in the secondary sector. The tertiary sector decline was more muted at 0.7%, and some subsectors, such as Government, Finance and Personal Services were the only pockets of growth.

The surprisingly steep economic contraction followed two successive quarters of expansion, and there is little evidence to suggest that the stop-start growth profile will improve materially in the foreseeable future. The economy grew 0.8% in 2018. Growth forecasts for 2019 started at over 1%, but have been progressively trimmed with the potential for further downward revisions. With the first quarter’s poor performance translating to 0% year-on-year growth, it is hard to envisage even 1% growth for 2019.

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