Statistics South Africa (StatsSA) reported on 5 March 2019 that the South African economy expanded by 0,8% during 2018 from a reading of 1,4% in the preceding year.
The full-year growth calculation was slightly better than the South African Reserve Bank (SARB) recently projected for the period (0,7%) following a higher-than-expected expansion in economic activity during the fourth quarter of last year.
StatsSA said in the report (available here) that real GDP increased by 1,4% quarter-on-quarter (q-o-q) on a seasonally adjusted and annualised basis during the October-December 2018 period, compared to market expectations closer to 1,2% q-o-q.
Lullu Krugel, chief economist at PwC Strategy& and Christie Viljone, economist at PwC Strategy&, unpack the StatsSA report.
Transport, storage and communication activities were the largest contributors to q-o-q growth during 2018Q4 (+0,7 percentage points) followed by manufacturing (+0,6 percentage points).
StatsSA previously reported a significant increase in the transporting of primary mining and quarrying products during the fourth quarter compared the same period in 2017. While mining production declined year-on-year (y-o-y) during 2018Q4, the value of mineral sales increased by an average of 10,6% y-o-y. Platinum group metals (PGMs) in particular showed a significant increase in sales, rising by 26,9% y-o-y in December.
Lower mining production weighed on the sector as a whole. Activity in the mining and quarrying sectors contracted by 3,8% q-o-q in 2018Q4. There was however positive news elsewhere within the primary sector as agricultural activity expanded by 7,9% q-o-q.
The value of agricultural exports increased last year to record highs (in US dollar terms) despite drought conditions in some areas. Gains were seen in fruit categories like oranges, apples and pears, amongst others. In the services sector, finance, real estate and business services continued on a trend of positive growth (+2,7% q-o-q) while general government services contract (-0,6% q-o-q) somewhat.
While manufacturing activity expanded (+4,5% q-o-q) and the utilities sector recorded a marginal expansion (+0,2% q-o-q), the construction sector contracted once again (-0,7% q-o-q) in 2018Q4.
Building activity declined for the seventh time in eight quarters as gross fixed capital formation (infrastructure spending) continued to disappoint.
South African businesses’ expenditure on fixed capital continues to suffer from weak business confidence and policy uncertainty. The Bureau for Economic Research (BER) previously reported that seven out of every 10 respondents to its business sentiment survey remain unhappy with prevailing business conditions.
Considering the first quarter of 2019, the Standard Bank South Africa Purchasing Managers’ Index (PMI) – an index that tracks business trends across private sector activity – increase to 49.6 in January from a reading of 49.0 in the preceding month. The latest reading pointed to the seventh straight month of contraction in private sector activity (a reading below 50 indicates a decline).
On a positive note, output and new orders indicators declined by a smaller margin in January as exports orders expanded for the first time in 16 month. Furthermore, Standard Bank reported that business confidence increased to a nine-month high in January as the private sector looked to a rebound in sales in coming months.
Prior to the release of the latest GDP data, South African economists were forecasting growth of around 1,5% this year – this is in line with predictions in the 2019 fiscal budget.
However, for this expansion to come to fruition, South Africa would need a notable improvement in business confidence in coming quarters. This, in turn, will be dependent on the creation of policy certainty in several key areas, including the debate around land expropriation without compensation.
The business community will also be interested in the makeup of President Cyril Ramaphosa’s post-election cabinet to gauge the outlook for governance over the next several years.