PPS Investments: GDP Commentary

After its second quarter rebound, the SA economy ground to a halt in the third quarter.

The news isn’t a complete surprise, with related data having already provided early indications of a slump in second half activity. According to official data released by Statistics South Africa today, the economy contracted 0.6% quarter-on-quarter, having roughly stood still in real terms over the past year.

All three sectors, from primary to tertiary, contracted this quarter. In the primary sector, the mining industry was the main detractor, on lower PGM, coal and iron ore volumes. A contraction in manufacturing weighed on the secondary sector, primarily related to metals and machinery and petroleum related production. Lastly, the tertiary sector, which reflects the services side of the economy was affected mainly by a sharp drop in transport related activity. Trade, government and financial services however, offset much of the weakness in tertiary, which saw a more muted pullback compared to the other economic sectors.

Although technically not in recession at the moment, conditions on the ground in South Africa are undoubtedly recessionary. Growth is absent, confidence is lacking, unemployment is rising and the prevailing trend is not in our favour. Optimists might point to the current low base, which should lend itself to a rebound of some sort, but it is becoming increasingly difficult to see how any mild cyclical recovery could to be the start of a more enduring structural uplift.

While a pickup in global growth next year might provide the proverbial rising tide which lifts all ships, SA remains in need of a credible growth plan, which perhaps Treasury has provided the starting point for in Tito Mboweni’s recent growth strategy document. For now, we expect no material uplift in the fourth quarter, and for current conditions to continue for the remainder of the year. One is always hopeful however, and the recent tick up in business confidence could be something to keep an eye on. Unfortunately, today’s print sets the tone for the February Budget, against which Moody’s will decide on the fate of our Investment Grade rating.