The actual Gross Domestic Product (GDP) growth rate for the first quarter is put at 2,2%, indicating a substantial contraction of the economy, when significant positive growth was expected.
This is the opinion of Prof Danie Meyer, a senior lecturer and researchers in the North-West University’s (NWU’s) Faculty of Economic and Management Sciences.
Prof Meyer, who is an expert in Local Economic Development (LED), is seated at the NWU’s campus in Vanderbijlpark. In this opinion piece he shares his views on the country’s growth prospects for the remainder of the 2018 financial year.
The contraction of the economy occurred within a positive global economic inswing phase, and as such whispers of yet another South African recession cannot be ignored. The latter speculation being based on the fact that the previous year’s growth sectors and important economic base sectors contracted in a similar way as 2018’s first quarter performance.
The agricultural sector decreased by 24%, due mainly to the policy uncertainty regarding land reform and the issue of expropriation of land without compensation. The 9,9% decline in the mining sector can be ascribed to ambiguity regarding the mining charter, whilst the manufacturing sector decreased by 6,4% due to the current climate of non-investment. Other red flags of concern include the 0,6% decline in domestic investments – indicative of a negative business environment, and the decline in net export by 3,1%.
From a short-term point of view, the continued trend of negative growth during the first quarter (as viewed over a three year period) persists. In 2016 the quarter had a negative growth of -0,8%, followed in 2017 by a negative rate of -0,5% and a -2,2% growth rate in 2018. The second quarter results will be made public on 4 September, and it would be interesting to compare the data to that of previous years. Over the last two years the second quarter GDP was reported as being the highest of all quarters, with a growth rate of 3,6% in 2016 and 2,9% in 2017.
The following factors should be taken into account when analysing the second quarter growth pattern:
- Manufacturing output increased by 1,1% in April, showing a slight improvement in the sector.
- Both the Purchasing Managers Index (PMI) and the Business Confidence Index (BCI) weakened below the critical level of 50 basis points, indicating a contracting economy.
- The public wage bills of government and Eskom are still growing faster than inflation, which has a negative impact on the financial viability of the two institutions.
- The volatile exchange is causing uncertainty for business in general and affects growth and a depreciating local currency has inflationary impacts.
- The rising petrol price has a negative impact on the economy and is further hiking up inflation and production cost.
- Policy uncertainty – which is at an all-time high, continues to put a stopper in domestic and international investment.
“I expect the second quarter GDP growth to be positive as compared to the negative growth rate of the first quarter. I do however expect a relatively low growth rate of between 1,4% and 1,8%. The overall growth rate for 2018 is henceforth expected to be adjusted downwards to between 1,2% and 1,6%,” said Prof Meyer.
Prof Danie Meyer.
