Business Maverick

Business Maverick

Data suggests that SA’s economy contracted in Q3

epa05840404 An unemployed South African man holds a self-made advertising board offering his services at a traffic intersection in Cape Town, South Africa 10 March 2017. Unemployment in African countries is one of the major issues facing governments and is an underlying aggravating factor fueling xenophobic tensions. According to global economics research group Trading Economics the unemployment rate measuring the number of people actively looking for a job as a per centage of the labour force reflects an unemployment rate across three African countries as 3.8 per cent in Liberia 5.3 per cent in Ivory Coast and 26.6 per cent in South Africa. EPA/NIC BOTHMA

South Africa dodged a recession in the second quarter of 2019, but the economy may be in the throes of one now. Data for the third quarter is generally bleak and suggests the economy contracted over that period. This means that if growth did not start rebounding last month, the economy could well be in recession mode now.

September mining production data released on Thursday was just the latest set of numbers which signals that South Africa’s economy may have contracted in the three months to the end of September. After dodging a recession in the second quarter, that is quite a letdown and underscores the mounting challenge facing President Cyril Ramaphosa as his government tries to attract investment and kickstart the growth that many analysts say is needed to make a dent in an unemployment rate approaching 30%.

Thursday’s data showed mining production barely rose in September, managing to grow just 0.2% year-on-year. This followed a fall of 3% in August. On a quarter-on-quarter basis, seasonally adjusted mining production shrank 1.6% compared to the previous three months. So its contribution to gross domestic product (GDP) will be negative for that period.

The manufacturing numbers have also been depressing. Compared to the second quarter, production in the sector decreased by 0.9% in the third quarter. Basic iron and steel production decreased by 7.8%, underlying the woes in a sector that is crucial for industrialisation. This was driven home this week by ArcelorMittal South Africa’s announcement that it was closing down its Saldanha plant.

And then there is retail. The data unveiled for that sector on Wednesday showed that retail sales were flat for Q3. This highlights the pressure that cash-strapped and debt-laden consumers remain under. In a research note, NKC African Economics said this “not bode well for the Q3 GDP growth rate, as outright contractions in manufacturing and electricity production are already signalling a growing probability that the economy contracted on a quarterly basis in Q3.” This sentiment – that the economy probably shrank in Q3 – has been echoed by other economists and analysts.

Confidence levels are also low and drought has been taking its toll. Small wonder the Treasury has revised its growth forecast for 2019 as a whole down to a sluggish 0.5%. One can only hope that that does not prove optimistic.

In Q2, the economy outpaced expectations with growth of 3.1%, after a sharp of 3.1% contraction in Q1 that was partly the result of summer-time load shedding. A recession was avoided then, but there is a possibility that one could be looming now.

If the economy did indeed shrink in Q3 – we will know on 3 December, when Stats SA releases the data – there are few signs that things are really picking up steam this quarter. This means that last week’s much-vaunted investment summit may have been held against the backdrop of an economy tipping into recession. BM

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