SA forecast to exit technical recession


December 4, 2018 7:00 am

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JOHANNESBURG – Economists expect the third quarter gross domestic product (GDP) data due today to show that South Africa’s moribund economy exited its first recession since 2009 in the quarter. The economy shrank 0.7 percent in the second quarter of the year, following a 2.6 percent contraction in the prior quarter.

Investec economist Kamilla Kaplan said yesterday that a modest rebound in economic activity was expected in the quarter following the technical recession in the first half of the year.

“Specifically, third quarter’s growth is forecast at 1.5 percent quarter-on-quarter seasonally adjusted annualised. The lift in the third quarter GDP growth momentum is, in the main, expected to have been underpinned by positive growth in the manufacturing and trade sectors,” Kaplan said.

The largest negative contributors to second-quarter GDP growth were the agriculture industry, which plunged 29.2 percent, followed by the transport industry, which declined 4.9 percent and trade which decreased 1.9 percent.

The Treasury and the South African Reserve Bank have both revised this year’s growth forecasts following poor second-quarter GDP print.

NKC African Economics economist Gerrit van Rooyen said: “Secondary data releases for the third quarter have confirmed that the economy has probably exited the recession in the quarter, growing by a forecast 2 percent quarter-on-quarter.”

Meanwhile, the Absa manufacturing purchasing manager’s index (PMI) increased to 49.5 points in November of 2018 from a nine-year low of 42.4 points in the previous month. 

The reading also pointed to the first increase in four months in factory activity, but still remained below the 50-point mark, which separates contraction from expansion.

John Ashbourne, a senior emerging markets economist at Capital Economics, said the rebound in South Africa’s manufacturing PMI in November was the latest sign that the economy was now recovering following a very weak performance earlier this year. 

“Yesterday’s surprisingly-strong result will add to the improved sentiment surrounding South Africa’s economy. The biggest improvement was a surge in the index measuring new orders, which jumped from 39 points to 50.3 points,” Ashbourne said.

The much improved PMI was expected to be aided by a huge drop in fuel prices announced by the Department of Energy over the weekend.

The department said both grades 93 and 95 of petrol would decrease by R1.84 per litre in Gauteng tomorrow. Diesel would decrease by between R1.45 and R1.47, while illuminating paraffin would decrease by R1.33 and R1.78. 

The Steel and Engineering Industries Federation of Southern Africa economist Marique Kruger said the rebound in the PMI was encouraging. “It seems that manufacturing activity is generally improving,” Kruger said.

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