GDP declines more than expected, at 0.6%



South Africa’s gross domestic product (GDP) contracted 0.6% in the third quarter after economic activity in a number of sectors weakened.

Statistics South Africa (Stats SA) data released on Tuesday showed that the mining, manufacturing and transport sectors experienced the biggest declines. Mining was down 6.1%, driven largely by a fall in the production of platinum group metals, coal and iron ore, Stats SA said.

Manufacturing fell 3.9%. The agency said this was due to the decreases in the manufacturing of basic iron, steel, and machinery products, as well as products related to petroleum, chemicals and plastics.

The transport, storage and communication industry contracted 5.4%.

“This is the biggest quarter-on-quarter fall for the industry since 1993. A slowdown in activity related to freight and passenger transport damped growth in the third quarter,” said Stats SA.

GDP is the measurement of the country’s output produced within a specific period.

Positive contributors to GDP in this quarter were in trade, government and finance.

The trade industry saw an increase of 2.6%, attributed to positive growth in wholesale and the motor trade, which lifted the sector.

A rise in civil service employment in provincial government and higher education institutions pushed general government services up 2.4%.

The overall contraction comes after the economy rebounded 3.2% in the second quarter of 2019, when Eskom was able to keep the lights on.

Stanlib chief economist Kevin Lings said the decline in the third quarter was worse than expected. The general consensus expected a decline of 0.2%. Lings said the contraction was fairly broad-based. “We did not think most of the sectors would be negative,” he added.

Investec chief economist Annabel Bishop said the contraction is a result of low demand in the economy and policy uncertainty. “Consumers are heavily indebted and others are unemployed, which reduces domestic demand. When your demand moderates then you do tend to see a moderation in GDP as well.”

Bishop said there is still a huge amount of policy uncertainty that is driving this depressed state. She said there needs to be a clear governance stance on issues such as land expropriation without compensation and the National Health Insurance Bill, among others.

Lings said business and consumer confidence will have to be restored to lead a pick up in investment spending. There is also concern because there is really no response in terms of policy initiatives by the government.

“If you look at the national treasury policy document [Economic transformation, inclusive growth, and competitiveness: towards an economic strategy for South Africa], there is nothing fundamentally wrong with that document but we do continue to struggle to implement effective policy measures.

“Normally a country under these circumstances would be cutting interest rates, as a way to stimulate [growth], but we struggle to do so because we still need to attract foreign investment,” said Lings.

A cut in interest rates would mean investors would receive a low return on their investments. He said the government cannot afford to cut taxes, because itself it does not have money to spend.

The usual policies you would implement to revitalise an economy are not available at this stage, Lings said. Restoring confidence in the private sector is clearly a struggle at this stage, he said, adding that it is unlikely we will see meaningful growth in the short term.

Last month the South African Reserve Bank revised its growth forecast for 2019 to 0.5% from 0.6 % because of weak domestic economic activity. 

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Tshegofatso Mathe
Tshegofatso Mathe is a financial trainee journalist at the Mail & Guardian

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