GDP turns the corner with 0.9% growth

A long hoped for recovery in manufacturing has helped South Africa emerge from recession. Statistics SA yesterday reported growth of 0.9 percent in the third quarter, after adjustment for inflation. Stats SA deputy director-general of economic statistics Rashad Cassim said the figure represented a turning point in the economy, after three consecutive quarters of contraction. But he warned it should be treated with caution.

"It is a seasonally adjusted quarterly change of 0.2 percent, which has been annualised (multiplied by four), which exaggerated the trend," he said.

When gross domestic product (GDP) is measured against the same quarter of last year, the economy contracted by 2.1 percent.

"So the long-term trend remained weak," Cassim said.

Dennis Dykes, the Nedbank group chief economist, said the third-quarter growth came off a very low base after contractions of 7.4 percent and 2.8 percent in the first and second quarters.

The first and second quarter figures were revised from the previous estimates of minus 6.3 percent and minus 3 percent, respectively.

In the fourth quarter of last year, GDP shrank 0.7 percent from a revised 1.8 percent. And last year, as a whole, GDP rose 3.7 percent from a previously estimated 3.1 percent.

The first-quarter contraction was the sharpest since the 6.5 percent shrinkage in the third quarter of 1984. South Africa's worst performance, since records started in 1960, was in the fourth quarter of 1982 when the economy shrank 8.2 percent.

While the growth figures are modest, the recovery is likely to be sustained. The Reserve Bank's composite lead indicator, which signals growth six to 12 months ahead, has been rising for six consecutive months.

The largest contribution to the third-quarter recovery was made by the manufacturing sector, which grew 7.6 percent, after contractions of 25.5 percent and 11.1 percent in the first and second quarters. The upswing was led by strong growth in petroleum, basic metals, steel and food manufacturing.


Economist Kevin Lings said the turnaround in manufacturing followed "massive depletion of excess inventories in the first half of the year". In other words, retailers had run down their stocks and had started ordering again from factories.

Positive contributions to overall GDP were also made by construction, which grew 6.1 percent; the government sector, which grew 4.9 percent; and the personal services sector, up 3.5 percent. The transport and communications sector grew 1.2 percent.

Despite the sharp rise in commodity prices this year, the mining sector shrank 5.8 percent, after growth of 15.8 percent in the previous quarter.

The poor performance was largely due to industrial action and closures related to maintenance, according to Joe de Beer, Stats SA's executive manager of economic analysis.

Agriculture shrank by 9.8 percent and the sector that includes finance and property fell 1.5 percent. The sector that includes wholesale and retail trade, hotels and restaurants fell 1.1 percent.

Lings said the "most concerning aspect" of the latest GDP estimate was the ongoing decline in retail trade activity, "which has now fallen for six consecutive quarters. Consumer spending remains under enormous pressure, with little sign of any real improvement."

Standard Bank said: "The retail environment remains burdened by rising unemployment, a debt hangover, negative net wealth effects and a limited savings buffer."

Household spending has been falling since the third quarter of last year, contracting 5.8 percent in the second quarter of this year.

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