In the final quarter of 2015, SA GDP rose by a very modest 0.6%q/q, annualised (seasonally adjusted). This compares with growth of 0.7%q/q in Q3 2015, 1.3%q/q in Q2 and 2.2%q/q in the first quarter of 2015. The latest GDP performance was slightly below market expectations, which was for growth of 0.9%q/q (STANLIB 0.9%q/q). Over the past year to Q4 2015, SA GDP rose by a mere 0.6%y/y.
During 2015 as a whole, the SA economy grew by a modest 1.3%. This is down from 1.5% in 2014 and 2.2% in both 2013 and 2012. For 2016, we still expect growth of only 0.5%, improving slightly in 2017 to 1.3%. It would appear that South Africa is going to struggle to lift its growth rate meaningfully back up to 2.0% over the next two years given the electricity, labour, and low-confidence constraints.
The modest growth in SA’s Q4 2015 GDP was largely due to a further decline in agricultural output (-14.0%q/q) as well as a fall-off in manufacturing production (-2.6%q/q). For 2015 as a whole the agricultural sector fell by a substantial 8.4%y/y, which is its worst performance in more than decade, while manufacturing exhibit almost no growth in the year. This is despite significant rand weakness. In contrast, the retail sector recorded encouraging growth of 2.8%q/q in the final quarter of the year, after achieving a growth rate of 2.5%q/q in the third quarter. The retail sector has been boosted more recently by well-above inflation increases in salaries. This is likely to change significantly in 2016 with inflation expected to move sharply higher, ending the year at around 8%y/y. There was also a welcome contribution from the business services sector (1.9%q/q) to GDP growth in Q4 2015. Overall, this was one of the best performing sector in 2015 with growth of 2.8% for the year as a whole.
The latest GDP growth data confirms that the South African economy has lost momentum over the past two years and remains on the cusp of recession, hurt by weakness in the primary and secondary sectors of the economy. This is partly due to labour disruptions, some electricity constraints at and industry level including the lack of new connections, a lack of policy clarity in key industrial sectors, a sharp drop-off in consumer and business confidence, falling commodity prices, and modestly higher interest rates. It is especially concerning that since the global financial market crisis in 2009, the rate of economic growth in South African has not been robust enough to lead to widespread job creation in the formal private sector. In addition, the government sector is now unable to provide significantly additional stimulus in the form of government spending given their elevated debt levels and the need to be more aggressive in achieving fiscal discipline.
Looking ahead, we expect SA economic growth to slow further in 2016. This slowdown partly reflects our concerns that a somewhat higher inflation rate in 2016 and rising interest rates will systematically further erode consumer spending, while the electricity constraints and policy uncertainty will continue to limit private sector fixed investment spending. Ultimately, it is critical that SA economic policy leaders find a way to lift growth and encourage business investment. Realistically, this is most likely to be achieved through a firmer implementation of the NDP, targeted infrastructure development – both hard and soft infrastructure – as well as labour market stability. Government should increasingly adopt a more practical approach to resolving key infrastructural bottlenecks, including the increasing use of private/public partnerships.
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