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South African economy exits recession in Q2
September 7, 2017, 5:51 pm

Despite weakness in the construction and government services sector, is the South African economy finally turning a corner? [Xinhua]


The South African economy grew by 2.5 per cent in the second quarter after two quarters of contraction

The second quarter 2017 gross domestic product data released by Statistics South Africa on Tuesday exceeded the consensus forecast of 2.1 per cent as it came in at a 2.5 per cent growth rate at a seasonally adjusted annualised (saa) pace.

The first quarter contraction was revised to show a 0.6 per cent drop rather than a 0.7 per cent fall.

On a year ago basis, growth accelerated to 1.1 per cent in the second quarter from 1.0 per cent in the first quarter and 0.7 per cent in the fourth quarter.

In terms of detail, the production measure of GDP showed that the weakness in the first quarter was broad-based with only the agriculture and mining sectors expanding out of the ten production sectors, while in the second quarters it was only two sectors that declined.

These sectors were construction and government services.

From an expenditure point of view, there were only three out of the six categories that had a negative contribution to growth. Exports soared by 14.4 per cent quarter-on- quarter (q/q) saa to contribute 4.1 percentage points to growth, but this was offset to a large extent by a 13.3 per cent q/q saa jump in imports which reduce growth by 3.9 percentage points.

The Statistics South Africa data on Tuesday exceeded the consensus forecast of 2.1 per cent as it came in at a 2.5 per cent growth rate at a seasonally adjusted annualised (saa) pace

Net exports, which is the difference between export and import growth, therefore only contributed 0.2 percentage points to growth.

Although inventories added a further R5.3bn worth of goods to stocks, the increase was less than in the first quarter, so the change in inventories reduced growth by 0.2 percentage points.

The final negative factor was a 2.6 per cent q/q saa decline in gross fixed capital formation as investment in housing slumped.

Contrary to perceptions that drop in fixed investment after two quarters of growth was not due to poor business confidence, but rather due to poor consumer confidence and /or the reduced willingness of commercial banks to lend for housing investment.

This is reflected in the real decline in mortgage lending.

Consumers were in fact fairly confident as final consumption expenditure by households soared by 4.7 per cent q/q saa in the second quarter after a contraction in the first quarter.

The main positive contributors to growth in household consumption were food and non-alcoholic beverages (up 10.1 per cent q/q saa and contributing 1.9 percentage points), clothing and footwear (up 26.7 per cent q/q saa and contributing 1.4 percentage points), and the ‘other’ category of expenditure ( up 8.2 per cent q/q saa and contributing 1.0 percentage point).

This buoyant demand was reflected in the 8.7 per cent q/q saa jump in real retail sales in the second quarter.

The bottom line, however, is that the second quarter was as much an anomaly as the first quarter when it comes to quarterly growth rates, so to look at trends in the economy it is better to look at the year-on- year (y/y) rates.

In that respect, the economy is on a recovery track as y/y growth in the second quarter edged up to 1.1 per cent from 1.0 per cent in the first quarter.

For the first half, growth was 1.1 per cent y/y, which is closer to the 1.3 per cent growth forecast for the full year of Treasury, rather than the 0.5 per cent forecast of the South African Reserve Bank.

The growth in the second half of the year will largely depend on a continued rise in exports as the bounce from the record maize harvest will fade as harvesting was in most cases completed in August.

The recent BRICS summit in China re-iterated the importance of cooperation for mutual benefit as an open international trading system was advocated by the BRICS partners.

Helmo Preuss in Pretoria, South Africa for The BRICS Post

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