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GDP growth momentum expected to remain subdued

Overall growth for 2018 likely to increase less than 1%.

Read more: SA emerges from recession as farming, manufacturing jump

Read more: What will it take to get out of recession?

NOMPU SIZIBA: The local economy is out of recession. The third-quarter GDP print rose by 2.2%, with increased growth seen in manufacturing, transport, agriculture and the finance sector. The GDP print beat market expectations and saw the rand rally, although that was short-lived. The question is: can we get some momentum in terms of economic growth?

I am joined on the line by Miyelani Maluleke, an economist at Absa. Miyelani, the manufacturing, transport and finance sectors contributed positively to the third-quarter GDP print. Just give us a bit more detail on those.

MIYELANI MALULEKE: Yes, certainly. I think we all expected that even South Africa would emerge from recession in the third quarter, and in the end the data did come in a little bit better than we actually expected. We were 2.2% on a quarter-to-quarter basis annualised. You are absolutely right. We’ve already seen, from the data that came through from StatsSA a little bit earlier, the manufacturing sector was one of the sectors that was to contribute quite strongly to GDP growth, and it’s exactly what we saw.

We also saw the services sector, which had actually been a little bit soft in the first half of the year, coming in really strongly. If you look at finance, real estate and business services, that was up about 2.3% quarter-on-quarter. Trade and accommodation up quite strongly. And we also saw a really strong rebound in transport and communication – which was down quite sharply in the second quarter – a rebound of almost 6% in the third quarter of 2018.

Another factor worth highlighting was agriculture. You’ll remember, in the first quarter it was down about 33%, second quarter down by a similar magnitude. There was a bit of a rebound in the third quarter and for me this is very encouraging. It was up by about 6.5%. So I think in a very broad way it is really encouraging that South Africa has emerged from recession.

NOMPU SIZIBA: But the pity, I suppose, was the mining sector performing quite dismally.

MIYELANI MALULEKE: Yes, absolutely. I think we kind of already expected this. We did see PGMs in the second half being really, really weak. We actually did reasonably well in the space in the second quarter, but it’s something we kind of expected. One thing worth pointing out with respect to mining specifically is that it can be quite volatile from quarter to quarter. But for me the key thing is that there are a couple of legislative things that have happened that will be positive and will be supportive to investment in the sector going forward. We wanted that with the new charter now, and I think industry has been widely supportive about it. The Department of Mineral Resources has also come out with “we do need to amend the MPRDA [Mineral and Petroleum Resources Development Act]”. So those two pieces of uncertainty that have been around in the space for quite a number of years are now out the way, and I think it really does open up space for mining to do relatively well going forward.

NOMPU SIZIBA: What do the GDP numbers tell us about the consumer?

MIYELANI MALULEKE: The expenditure side of it was also encouraging. I think we have been talking for quite some time about just how constrained the consumer is from the tax increases that we’ve seen, the fuel price increases that we have seen throughout the year, and the income effect that all of these have actually had. We did see a bit of a recovery in the first quarter. Now consumption expenditure was up a little by about 1.1% – not an extreme number. But I think what it does tell us is that we still do have some degree of resilience within the consumer, even if it’s generalised.

NOMPU SIZIBA: We are technically out of recession, which is great news, and it was a good jump in GDP. It wasn’t zero-point something, it was substantial. But the big question is: can we get momentum at these levels, or beyond in Q4 [second quarter]?

MIYELANI MALULEKE: Absolutely. I think this is a key question now, because the big third-quarter data focus today in a way – they tell us about what happened in the end between July and September, but people want to know whether this growth can be sustained. We have seen a bit of high-frequency data giving us an indication of what the fourth quarter might look like. I have to say that, broadly, it looks as if momentum remains fairly subdued. We had the Business Confidence Index come out. It was a little bit faster. We had the consumer confidence index – it was a little bit faster. We’ve also seen some strides such as the Absa manufacturing PMI [Purchasing Managers Index] up a little bit in November. But broadly I think it’s pretty clear that growth momentum is still quite soft in South Africa. And I think it’s quite likely that growth overall this year will actually go up less than 1%.

NOMPU SIZIBA: This still speaks to the consumer. To what degree do you think these massive petrol-price cuts that we are going to get – tonight in fact – will give the economy a bit of a boost? I was speaking to Mike Schüssler the other evening and he was talking about several billion rand going back into people’s pockets, which they may spend in the economy.

MIYELANI MALULEKE: He’s absolutely right, because we did some calculations in terms of what the fuel-price increases that we’ve had from about March have taken from our consumers. We came to a figure of about R15 billion that the fuel-price increases have taken. So this cut, in the region of R1.80/litre for petrol, close to for R1.50 for diesel, is certainly going to give a lot of money back to consumers. I think it’s a significant relief, for sure.

NOMPU SIZIBA: This year has been an interesting one. We’ve had a change of president, a keenness to clarify policy positions, and a number of summits that speak directly to boosting economic growth. Are you seeing green shoots that can help propel the economy, or does it remain a big question mark until after the national election?

MIYELANI MALULEKE: I have to say that we’ve been listening to all of the stations, the announcements that have come out from the Jobs Summit, from the Investment Summit. They have certainly been upbeat to some degree. Though, if we look at survey-based data like the Business Confidence Index, it still tells you that close to 70% of businesses that were polled in the fourth quarter were still not satisfied with business conditions. That means that there still seems to be a little bit of hesitancy in that. So it does appear that people are waiting for a little more in terms of policy action, and people are thinking that that action – there needs to be a lot more of it, maybe into next year, but quite possibly after the election.

NOMPU SIZIBA: Thanks to Miyelani Maluleke.

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