SA GDP Q1 Results Disappointing, Outlook Remains Positive
South African GDP for the first quarter of 2018 disappointed on a quarter on quarter seasonally adjusted annualised (qqsaa) basis to -2.2% (versus expectations of -0.7%), compared to growth of 3.1% qqsaa in Q4.17.
The main contributor to the decline was the agricultural sector which fell considerably, by 24.2% qqsaa, after seeing a strong 2017 as the sector recovered from the droughts in 2016.
According to Stats SA, “the decrease was mainly because of a drop in the production of field crops and horticultural products”.
Mining and manufacturing production detracted from GDP as expected. The mining sector declined by -9.9%, while manufacturing sector activity dropped by -6.4% qqsaa. Gross fixed capital formation (GFCF) fell by 3.2% qqsaa in Q1 which resulted in a negative contribution of -0.6%.
According to StatsSA, the decline stemmed primarily from “activities associated with construction works, machinery and other equipment and residential buildings.”
However, improved business confidence locally and offshore should lead to growth in this category going forward in 2018.
Despite the disappointing first-quarter GDP, the Cyril Ramaphosa presidency is still committed to fiscal consolidation, faster inclusive growth, and the repair of SOE finances.
The South African Reserve Bank in their latest MPC statement, mentioned that the “weak first-quarter growth outcome is not expected to derail the upward trend” in growth and “does not yet reflect the renewed business and consumer optimism”.
The economic growth outlook is therefore still bright, factors such as higher sentiment levels, improved private sector investment and the strong global demand increasingly taking effect.