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Worst of SA growth cycle now over - economists

Mar 07 2017 16:31
Lameez Omarjee

Johannesburg – The 2016 GDP growth of 0.3% was below projections of 0.5%, but economists believe that the low growth cycle has bottomed out and expectations for growth in 2017 is above 1%.

Statistics South Africa (Stats SA) released GDP growth data for the last quarter of 2016 on Tuesday. It showed that GDP contracted 0.3% in the fourth quarter.

The main contributors to the decline was primary sector’s mining and quarrying industry and the secondary sector’s manufacturing industry. Both reported declining production levels.

READ: SA economy shrinks more than expected

Agriculture shrank 7.8% for the year, and mining contracted 4.7% - this took off 0.6 percentage points of GDP, said Jason Muscat senior economic analyst at FNB.

The tertiary sector grew by 1.3% and contributed positively to GDP growth. The largest contributors to GDP include trade, catering and accommodation, and finance, real estate and business services, according to Stats SA.

Muscat said that this low growth trend has come to an end. “We maintain that the worst of the growth cycle is now behind us, and expect 1.1% growth in 2017.”

He also raised concern over a 0.7% contraction in taxes less subsidies, as was seen in the R30.4bn revenue shortfall. “This holds significant ratings risk,” he said.

Momentum Investments economist, Sanisha Packirisamy echoed these views. “We are of the view that GDP bottomed in 2016 and should improve to around 1% in 2017 and 2% in 2018,” said Packirisamy.

Improved global GDP growth would benefit South Africa’s export demand. A recovery in global commodity prices, by nearly 20%, should also lead to a turnaround in the mining and manufacturing sectors, she explained.

An improvement in the agricultural sector will also contribute to the uptick.

Further, as more energy comes online with all four units of the Ingula Pumped Storage Scheme being commercially operational, this will be positive for the growth outlook.

“The Reserve Bank’s leading indicator has edged higher for the sixth consecutive month in December 2016, highlighting a likely turnaround, albeit mild, in overall GDP growth,” she added.

Thabi Leoka, economist at Argon Asset Management added that it is likely GDP growth had bottomed out and a “slight improvement” can be seen in the first quarter. The forecast for 2017 is 1% and 1.6% in 2018, she said.

Leoka also explained that the impact of the improvement in commodity prices near the end of last year would probably be seen in future quarters.

When asked how ratings agencies would view the latest statistics, Leoka explained that they would unlikely only consider the single figure, but rather a number of factors. Among these include projections of improved growth and if South Africa reaches those targets.

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