Economic growth increases to 1.3% in 2017
Statistics South Africa (StatsSA) reported on 6 March that the South African economy expanded by 3.1% quarter-on-quarter (q-o-q) during the fourth quarter of 2017. This was stronger than the preceding quarter’s growth reading of 2.3% q-o-q, which was previously reported as 2% q-o-q. Accelerated growth near the end of last year resulted in overall annual economic growth rising from a revised 0.6% in 2016 to 1.3% in 2017. The South African rand reacted positively to this StatsSA publication.
StatsSA makes routine adjustments to historical gross domestic product (GDP) calculations as more granular information becomes available. This resulted in an upward revision of data dating back to 2016Q1. As a result, while the South African economy was previously reported as having been in recession during 2016Q4-2017Q1, revised GDP estimates now show that real economic activity expanded in 2016Q4 and contracted in 2017Q1 only. A technical recession requires two consecutive quarters of q-o-q decline in GDP.
The South African economy was 1.5% year-on-year (y-o-y) larger during the fourth quarter of 2017. The mining (+4.9% y-o-y) and manufacturing (+2.4% y-o-y) industries recorded the fastest growth levels, while the construction industry (-1.2% y-o-y) contracted. Surveys by the Bureau for Economic Research (BER) found that confidence in the building sector was at its lowest in more than five years during 2017Q4. All other industries recorded positive growth during the fourth quarter, including a 2.1% y-o-y expansion in the finance, real estate & business services sectors (which include audit and advisory companies)
Considering the first quarter of 2018, the Standard Bank South Africa Purchasing Managers’ Index (PMI) – based on a representative monthly survey of private sector companies – reflected improved readings for January and February compared to the close of 2017. Respondents identified higher volumes of new orders in February as a reason for optimism, with companies experiencing a rise in new business. This was associated with healthier domestic demand; export orders were under pressure from a strong rand exchange rate. Business and consumer confidence data for 2018Q1 are yet to be released.
The National Treasury’s Budget Review 2018 indicated that the government projects economic growth to rise to 1.5% in 2018 on the back of an expected increase in private investment from an improved business and consumer confidence. Newly reappointed finance minister Nhlanhla Nene commented on March 5th that the government’s GDP growth projections will probably be raised with the tabling of the Medium-Term Budget Policy Statement (MTBPS) in October this year. He reasoned that the country will reap dividends from planned growth-boosting reforms and the stabilisation of state-owned enterprises (SOEs). The revised GDP data will add to this upward revision.
Christie Viljoen, PwC Economist
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