South Africa’s latest gross domestic product (GDP) figures mark the fourth quarter of decline during President Cyril Ramaphosa’s tenure.
According to data released on Tuesday by Statistics SA, GDP contracted by 0.6% in the third quarter. The mining, transport, communication and manufacturing sectors were the biggest drag on economic growth, registering a 0.5 percentage point decline each. Conversely, trade and government contributions increased 0.4 percentage points each, as indicated in the graph below.
Q3 GDP sector performance
The only time economic growth has been recorded during Ramaphosa’s presidency was in the second quarter, when it came in at 3.2%, up from 3.1% in the first quarter.
Economic analysts were not shocked by the outcome.
As FNB economist Matlhodi Matsei says: “This outcome was in line with [our] expectations, but worse than the Bloomberg consensus of a flat reading.”
Policy uncertainty remains around the issue of expropriation of land without compensation, with the government yet to legislate the ANC’s proposal.
Another issue of concern is the government’s policy around the proposed National Health Insurance (NHI).
“Many are concerned that their access to private sector health care will be rescinded, along with their choice of which practitioners to use, with many emigrating as well this year,” says Annabel Bishop, chief economist at Investec.
Business confidence in the country is also not where it should be. The fact that SA has failed to meaningfully reduce its regulatory burden in the last two years is reflected in the drop in the ease of doing business index. This has kept confidence levels depressed, with the GDP results reflecting the weak-demand environment.
“This was expected as the BankservAfrica Economic Transaction Index showed a slowdown,” says Mike Schüssler, chief economist at Economists.co.za. “Business and consumer confidence are still very low and SA will be lucky to get to 0.5% growth this year.”
He adds that South Africa could even be in a recession.
“We are certainly very worried that we need a lot of things to go right – like the weather, commodity prices, and confidence,” he says.
Analysts agree that Eskom’s unscheduled power cuts continue to trip up economic growth. Unreliable electricity supply was a key culprit in crippling small businesses and constraining mining and manufacturing production.
Bishop notes that the global economic slowdown has seen trade volumes drop, with SA mining and manufacturing activity contracting in line with the lower demand for commodities.
“The mining sector saw platinum production drop, while six out of 10 manufacturing sectors saw production decline,” says Bishop.
Subsectors affected by the decline in demand include basic iron and steel, non-ferrous metal products, metal products and machinery; petroleum, chemical products, rubber and plastic products; and wood and wood products, paper, publishing, and printing.
“Lower global demand for many of these goods contributed to the drop in manufacturing production as the global trade war led by the US continues to negatively affect demand,” says Bishop.
The mining sector also saw the production of coal and iron ore moderate due to lower demand.
The agricultural sector declined by 3.6%, while transport was the only tertiary sector to record negative growth (down 5.4%). On the upside, gross fixed capital formation rose by 4.5%.
Many economists see further rating downgrades in 2020 as a result of the poor GDP figures. Bishop however doesn’t see a downgrade happening.