Relief at Q4 2017 GDP figures



Maarten Ackerman

Better than expected GDP figures for 2017 released today brought sighs of relief all round after an unquestionably tough year economically for South Africa.

Numbers show that the local economy grew by 3.1% in the final quarter of last year (quarter on quarter annualized), following a similar rebound in the second and third quarters from the negative growth experienced at the start of the year.

Despite the political turmoil and credit rating downgrades that marked the year, this brings total growth for 2017 to 1.3% rather than the 1% forecasted by National Treasury during the National Budget Speech a few weeks ago.

The GDP figures for the last quarter of 2016 were additionally revised from -0.3% to 0.4%, meaning that the country did not experience a technical recession, while total growth for 2016 was revised from 0.3% to 0.6%.

According to Citadel Chief Economist and Advisory Partner Maarten Ackerman, this momentum will help to support the fiscal targets set in February’s Budget Speech, almost immediately seeing the rand winning ground of more than 10 cents against the dollar following the release.

“Strong growth figures also substantiate Finance Minister Nene’s announcement on Monday that GDP figures will be revised upwards in the October 2018 Medium Term Budget Policy Statement, and confidence that South Africa will avert a credit rating downgrade by ratings agency Moody’s in March.”

He notes that growth in household expenditure of 3.6% in the final quarter of 2017 is particularly encouraging, demonstrating that South African consumers “are not down and out”.

“The recent rebound in business and consumer confidence following changes in political leadership should support this momentum into 2018, further driving economic recovery.”

The 7.4% growth in gross fixed capital formation is also very heartening, following a number of quarters of negative growth. This is largely driven by an increase in demand for machinery and transport, signalling reinvestment into the economy, Ackerman explains.

However, strong growth in the final quarter of 2017 was largely driven by a rebound in agricultural output from a low base in the wake of drought to a record harvest.

“This tail wind will fade and if we exclude agricultural growth, GDP growth for 2017 would have been around just 1%.”

“Weak trade, manufacturing and construction figures for 2017 are also cause for some concern, and will need to be addressed moving forward.”

This means that while consumers could potentially see some relief in the form of an interest rate cut by the South African Reserve Bank (SARB) later this month, especially given recent rand stability and the fact that inflation is well within the target range, the GDP data will probably support a ‘no change’ decision at the next meeting, he says.