GDP Update: Q3.17 GDP growth supported by the agriculture, mining and manufacturing sectors

06 Dec 2017

Annabel Bishop

Chief Economist

GDP growth eased to 2.0% y/y quarter on quarter seasonally adjusted annualised (qqsaa) in Q3.17 from 2.8% qqsaa (revised up from 2.5%) in Q2.17.

Figure 1: GDP sector performance in Q3.17 (production approach), qqsaa
  • GDP growth eased to 2.0% y/y quarter on quarter seasonally adjusted annualised (qqsaa) in Q3.17 from 2.8% qqsaa (revised up from 2.5%) in Q2.17. The outcome was stronger than consensus of 1.7% qqsaa.
  • The slower growth between Q2.17 and Q3.17 was mainly attributable to decreased contributions from the utilities, trade and finance sectors.
  • In Q3.17, activity contracted in the utilities and trade sectors, with these sectors detracting from GDP. Stats SA ascribed the declines in activity to “decreases in electricity consumed and produced and water available for distribution” in the utilities sector and to “(d)ecreased economic activity (<) in wholesale trade, motor trade and catering and accommodation activities” in the trade sector.
  • Growth in the finance sector slowed but remained positive on activity in “financial intermediation, insurance and auxiliary activities.”
  • In Q3.17, six of the ten sectors registered growth (see figure 1). The largest contributions of 0.9%, 0.5% and 0.5% stemmed from the agriculture, mining and manufacturing sectors respectively.
  • Agriculture output lifted for the third consecutive quarter in Q3.17, on favourable weather conditions in the maize producing regions of the country and expected record maize harvest.
  • Increased gold and platinum production supported mining sector activit,y whilst activity in the manufacturing sector improved on higher production in petroleum, basic iron and motor vehicles.
  • The government sector contracted for the third consecutive quarter in Q3.17 on “declining levels of employment”. This would be consistent with the effects of the freeze in civil servant hiring in efforts to contain the growth in the civil service compensation budget.
  • In the first three quarters of the year, growth averaged 1.0% y/y and is likely to record a similar outcome for the full year. SA’s economic growth performance has diverged from the global trajectory of strengthening momentum. SA’s growth prospects are mainly reliant on the recovery in agriculture output following the 2015/16 drought and an increase in mining output, with commodity prices having risen from decade lows reached in early 2016.
Figure 2: SA versus global GDP growth
Figure 3: GDP sector performance in Q2.17 (expenditure approach), qqsaa
  • The expenditure approach to measuring GDP yielded an increase of 2.1% qqsaa in Q3.17 versus 2.7% qqsaa in Q2.17.
  • Household consumption expenditure growth eased to 2.6% qqsaa in Q3.17 from 4.7% qqsaa in Q2.17. In the first three quarters of the year, household consumption spending growth increased to 1.3% y/y from 0.8% y/y in the same period last year.
  • The moderation in CPI inflation, to 5.5% y/y over this period from 6.3% y/y, will have provided some support to consumer spending. However, depressed consumer confidence, elevated unemployment rates, slower income growth, high levels of indebtedness and a higher tax burden have constrained consumers’ willingness and ability to spend. Moreover, the relatively tight credit standards applied by retail banks has manifested in subdued rates of credit extension.
  • After contracting by 2.0% qqsaa in Q2.1, gross fixed capital formation rebounded to 4.3% qqsaa in Q3.17 on account of a lift in private sector investment, which comprises two-thirds of total investment.
  • In Q3.17, the contraction in imports outpaced the fall in exports resulting in an improvement in net exports and the so the external sector contributed positively to GDP.
  • Consumption expenditure by government contracted with Stats SA ascribing this to “(a) decrease in employment numbers.”
  • A low economic growth environment will remain entrenched by the depressed business and consumer confidence levels that have been linked to perceived heightened policy uncertainty and perceptions of weakening governance (see figure 4).
  • In its latest Monetary Policy review the SARB found that the negative impact of low confidence on economic growth has increased in recent years. Had confidence not decreased SA’s GDP growth would have been 1.5% in 2016 instead of 0.3%.
  • The SARB has also noted that “credible structural policy initiatives that will reduce uncertainty and increase business and consumer confidence” are necessary.
Figure 4: Confidence and policy uncertainty
Figure 5: Seasonally adjusted, annualised and annual real growth rates (%) respectively
Figure 6: Seasonally adjusted, annualised and annual real growth rates (%) respectively