Biggest maize crop on record yeilds GDP surprise

By: Maarten Ackerman, Chief Economist and Advisory Partner, Citadel

Corner has been turned …

This year might just turn out better than most people expected. Numbers released recently of GDP growth showed that the South African economy rebounded by 2% in the third quarter (quarter-on-quarter annualised). This brings growth for the past year to 0.8% and year to date to 1% – which is already higher than the current consensus number for 2017, including recent numbers published by the South African Reserve Bank and the National Treasury.

Even if we were to record zero growth in the final quarter of this year, it seems that South Africa is probably going to generate growth in excess of 1% for 2017. This compares favourably to very weak growth last year and points to a slow recovery in the growth trajectory.

… thanks to the primary sector

The bulk of the third quarter growth came from the primary sector rallying almost 15%. Agriculture rebounded 44.2%, on the back of the biggest maize crop on record while mining and manufacturing also performed well.

Government consumption slowing …

The decline in government expenditure by 0.5% on the back of slower government employment is also encouraging given the current weak fiscal position. Furthermore, the 2.6% increase in household expenditure suggest that consumers are not on their knees as suggested by the very low consumer confidence.

… while infrastructure spending is on the rise

Infrastructure spending rose by a considerable 4.3%, which is likely to see downstream benefits in economic growth in future periods and is a particularly healthy sign for the economy if this trend can be sustained. The largest spending hike came in transport equipment and machinery and other equipment. Despite some green shoots, negative growth numbers for electricity, construction, exports and imports (pointing to lack of demand and investments) suggest that the economy is still not out of the “low growth woods”. While the better-than-expected numbers should help to alleviate some of the recent fiscal pressures, the real relief will only follow if the annual growth rate can be lifted sustainably above 2.5%.

Interest rate cuts likely to be over

Numbers released today, coupled with recent currency movements and expected inflation over the next twelve months, suggest that the South African Reserve Bank is probably done with cutting interest rates for now.