Further deterioration of GDP growth likely - economist

Mar 02 2016 06:00
Liesl Peyper and Carin Smith

Cape Town - Year-on-year (y/y) gross domestic product (GDP) growth in South Africa will likely deteriorate further in the next quarter or two at least, John Loos, household and property sector strategist at FNB Home Loans, warned on Tuesday.

He pointed out, however, that both SA's quarter-on-quarter and y/y GDP growth remain narrowly outside of contraction.

Statistics SA announced on Tuesday that South Africa’s GDP for the fourth quarter of 2015 increased by 0.6%, somewhat higher than the 0.5% expected by economists, but lower that the 0.7% recorded in the previous quarter.

The annual real estimate for GDP for 2015 climbed by 1.3%.

"But if one views the more smooth moving y/y rate of growth, the broad multi-year growth slowdown since 2012 remains in place," cautioned Loos.

From 1% year-on-year in the third quarter, the rate slowed further to 0.6% in the fourth quarter. This is the slowest y/y growth since the final quarter of 2009.

The main contributing sectors for the growth were among others trade (2.8%), finance (1.9%), mining (1.5%) construction (1.1%) and electricity (0.9%)  
The agriculture sector showed the lowest growth at -14%, which is by and large large attributed to the worst drought in years.
Mining’s positive growth was one the big surprise factors. According to statistician-general of South Africa, Dr Pali Lehohla, the increase was thanks to improved electricity generation.
The nominal GDP was estimated at R1 027bn to R20bn more than the third quarter. Industries that expanded were:
- Trade by R16bn
- Transport by R4bn
- Finance by R2bn
- Electricity by R6bn
In his budget speech, Finance Minister Pravin Gordhan said growth in the South African economy for 2016 would be a mere 0.9% after 1.3% in 2015.

READ: SA economy grew 0.6% in fourth quarter

The negative impact of ongoing weakness in GDP growth on household spending could be felt in two ways, according to Loos.

Firstly, it is likely that real growth in disposable income will continue to broadly slow, as wage bill growth slows further in the near term.

Secondly, increased job losses and a lack of new job creation are likely to dampen consumer confidence.

"The response should be for the household sector to begin to spend more conservatively relative to income, and raise its savings rate, as it started to do briefly when the environment became tough around 2008/2009," said Loos.  

READ: GDP grows marginally by 0.7% in third quarter

"The slowing y/y GDP growth rate comes as little surprise, as we have seen both our own FNB Estate Agent Survey Residential Activity rating, as well as the Sarb and OECD Leading Business Cycle Indicators, pointing the way weaker on a y/y basis," he said.

"Given a two to four quarter lead that our Residential Activity Rating can have over GDP growth movements, it would appear likely that y/y GDP growth still has to deteriorate further in the next quarter or two at least."

Loos believes that the ongoing broad slowdown in economic growth will impact negatively on the residential property and mortgage markets, and that further slowing in growth in these sectors is likely in the near term.

Hugo Pienaar, senior economist at the Bureau for Economic Research at Stellenbosch University, said the 0.6% GDP growth is by and large in line with expectations.

“The figure is characteristic of an economy where the growth rate has slowed down,” said Pienaar. “It’s worrying that the agricultural sector has contracted even further.”
National Treasury’s expected annual growth rate of 0.9% is not unrealistic, said Pienaar, “but there are huge risks and we believe the growth rate could be closer to 0.5% than 1%.”

Dawie Klopper, investment economist at PSG, told Fin24 on Tuesday that South Africans should be grateful that the economy managed to expand in the fourth quarter of last year – albeit from a very low base.

“We can indeed be thankful that the economy didn’t contract in the fourth quarter. The 0.6% GDP growth is at a glance not a bad figure, but the fact remains – it’s from a very low (third quarter) base.”

Klopper is of the view that there is built-up demand in the South African economy and that growth could stem from the tourism industry, but it’s difficult to see where growth will originate elsewhere. “There is a lot of uncertainty and very little trust.”

ALSO READ: SA GDP contracts by 1.3% in second quarter

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fnb  |  psg  |  sa economy  |  gdp



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