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05 Mar 2018

GDP Update: Economic activity lifts above expectations to 3.1% qqsaa, data revisions see recent recession removed

Annabel Bishop

Chief Economist

AgricultureFigure 1: GDP sector performance in Q4.17 (production approach), qqsaa
  • GDP (measured by production) for Q4.17 grew on a quarter on quarter seasonally adjusted annualised (qqsaa) basis to 3.1%, (above consensus of 1.8% qqsaa), compared to growth of the upwardly revised Q3.17 figure of 2.3% qqsaa (from 2.0% qqsaa). Prior quarters were also revised upwards, eradicating the recession at the turn of 2016/2017.  In Q4.17 the agricultural sector continued to experience very strong growth for the fourth quarter in a row. It grew by 37.5% qqsaa, yielding the largest contribution of 0.8% to the headline GDP figure.
  • The trade sector, also made a significant impact on the headline number, yielding a contribution of 0.6% on the back of growth of 4.8% qqsaa.
  • The mining sector contracted by 4.4% qqsaa in Q4.17, while the manufacturing sector remained on a positive trajectory, rising for the third quarter in a row, by 4.3% qqsaa. Activity in the manufacturing sector was influenced by commodity linked production.
  • The financial sector, which makes up a significant weighting of over 20% of GDP, grew by 2.5% qqsaa, primarily on the back of increased activity in financial intermediation and auxiliary activities.
  • For the year as a whole the South African economy grew by 1.3%, compared to 2016’s growth of 0.6%. The improved economic growth performance was mainly limited to a recovery in the primary sector.
  • Specifically, output increased in the agriculture sector, as the drought effects in most of the country dissipated. Additionally, the rebound in global commodity prices, from lows reached in early 2016, will have aided the recovery in the mining sector.
  • Finance Minister Nene has said “that based on recent developments, including the election of President Cyril Ramaphosa and a budget statement welcomed by markets, he was confident that SA would see stronger economic growth.” Recent positive political developments are expected to have boosted sentiment, leading to a notable improvement in confidence, and so aid growth in 2018. We are expecting GDP to recover further to around 1.5% in 2018 and 2.0% in 2019.
Figure 2: Contributions to Q4.17 GDP (Production Approach)
Figure 3: GDP sector performance in Q4.17 (expenditure approach), qqsaa
  • The expenditure approach to measuring GDP grew by 3.1% qqsaa in Q4.17, compared to growth of 2.3% qqsaa in Q3.17.
  • Household consumption expenditure contributed 2.2% to the headline number, on the back of growth of 3.6% qqsaa. The main contributor to growth in this category was the clothing and footwear sector. Government expenditure on the other hand logged growth of 1.6% qqsaa.
  • Gross fixed capital formation (GFCF) rose by 7.4% qqsaa in Q4.17 qqsaa, yielding a contribution of 1.4%. The lift stemmed primarily from the machinery and other equipment category and the transport equipment grouping which increased by 9,2% and 21.7% and contributed 3,0% and 2.3% to total GFCF respectively.
  • In Q4.17, import growth of 26.5% qqsaa exceeded export growth of 12.3% qqsaa. According to Stats SA “(e)xports of base metals and precious metals products were largely responsible for the increase” in overall exports, according to Stats SA.
  • Changes in inventories was also a significant contributor, adding 2.9% points to total growth. That is “large inventory build-up was reported for the trade sector. These drawdowns were partially offset by drawdowns of inventories mainly in mining industry”, according to Stats SA.
  • On an annual basis expenditure growth lifted to 1.2% in 2017, from 0.6% in 2016.
  • In 2017, household consumption expenditure grew by 2.2% y/y, from 0.7% y/y in 2016. This lift reflects the effects of lower inflation, which would have provided some relief to the household financial position in 2017.
  • For the year as a whole, GFCF was up by 0.4% y/y. Improved business confidence should lead to growth in this category in 2018.
  • This higher than expected growth outcome, together with government’s stated policy reforms should assist South Africa in averting a sovereign credit downgrade by Moody’s rating agency.
Figure 4: Seasonally adjusted, annualised and annual real growth rates (%) respectively
Figure 5: Seasonally adjusted, annualised and annual real growth rates (%) respectively