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Johannesburg – Economists say South Africa may struggle to hit a previously projected 0.5% gross domestic product growth in 2016 amid a weaker-than-expected GDP expansion of 0.2% for the third quarter.
Statistics South Africa released the third-quarter data for GDP growth on Tuesday. Data showed that growth was 3.1 percentage points lower than that reported in the second quarter. It was also 0.1 of a percentage point lower than the 0.3% recorded in the third quarter of 2015.
READ: Further drop in GDP growth
The South African Reserve Bank last month forecast growth of 0.4% for 2016, while Treasury in its mini budget forecast growth of 0.5%.
But economists are more bearish.
“Growth will probably be below 0.5% for the year as a whole,” economist Dawie Roodt told Fin24.
Roodt highlighted that the decline in investment and retail sales in the third quarter was concerning. The contraction in retail sales was a “surprise”, he said.
Roodt added that if the decline in investment continues in the fourth quarter, this will have a negative impact on economic growth in 2017.
Low business and consumer confidence may limit the growth recovery in the next year, explained Momentum Investments economist Sanisha Packirisamy.
Packirisamy added that growth in fixed investment is expected to remain “sluggish”.
“Political noise is likely to remain elevated in the run-up to the African National Congress National Executive Committee elective conference in December 2017.”
As a result, fixed investment projects may only pick up in 2018 again, said Packirisamy.
Stanlib chief economist Kevin Lings also said growth could dip below 0.5% for the year. Factors contributing to this are low business confidence, domestic policy constraints and below-average global growth, said Lings.
He added that weak consumer and business confidence is as a result of “political tension” and “increased policy uncertainty”.
FNB economist Mamello Matikinca said better business confidence is key to boosting growth.
“We need to see business confidence improve for investment to improve,” she said.
Business confidence is not positive regarding the political environment and the economic environment, both globally and domestically, said Matikinca.
READ: Further drop in GDP growth
Risk of recession remains
The South African economy remains at risk of slipping into recession.
Economic growth in South Africa has failed to gain momentum since the global financial crisis in 2009, added Lings.
Matikinca, however, said that growth of 0.5% may still be possible. FNB’s projection for the year is at 0.2%. Growth may surprise on the upside if 0.7% growth, or higher, is achieved for the fourth quarter, she explained.
Stanlib projects growth for 2016 of about 0.3%, and an improvement of 1.2% in 2017.
Market expectations for the third quarter were for an increase of 0.6%, said Lings. The year-on-year rate of growth, between Q3 2015 and Q3 2016, remained steady at 0.7%, according to data from Stats SA.
FNB, Stanlib and MMI have the same assessment of the economy.
“Although some sectors of the economy continue to exhibit positive growth, most industries have experienced a meaningful slowdown in economic activity over the past two years,” stated Lings.
Some detractors to growth include the manufacturing sector, trade and accommodation and less consumption of electricity, said Matikinca. The manufacturing sector contracted by 3.2% while the retail sector also fell by 2.1%.
Main contributors to growth were the mining and quarrying sector, which grew by 5.1% due to higher production in mining, particularly iron ore. It contributed 0.4 percentage points to overall GDP growth, according to the report.
This growth in output may be because there were no interruptions to production, explained Matikinca. In previous months there had been safety stoppages, impacting production levels.
Further, the business services sectors also grew by 1.2% and contributed to the quarter’s overall growth.
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