By Reza Hendrickse, Portfolio Manager at PPS Investments.
Strong third quarter GDP growth has exceeded market expectations and signalled an end to the technical recession caused by two consecutive quarters of negative GDP growth earlier in 2018.
The SA economy grew 2.2% quarter-on-quarter in real terms. Furthermore, the second quarter contraction was revised to -0.4% from -0.7%. While the rebound in third quarter growth comes off a low base following two successive weak quarters, it’s an encouraging sign that economic expansion is back on track.
The volatile primary sector contracted again in the third quarter (by a more muted 5.4%), but was offset by strength in the secondary and tertiary sectors, which grew 4.5% and 2.6% respectively. Within the primary sector, agriculture rebounded by a robust 6.5%, after the second quarter collapse, but this was offset by weakness in mining. Overall, manufacturing, transport and finance were the largest contributors to third quarter growth, while mining was the largest detractor.
While third quarter data presents a solid foundation to build on, we remain circumspect around future growth prospects. The short-term impetus we are currently seeing is encouraging, but may be negatively impacted by Eskom’s power generation capacity affecting economic output.
After GDP growth of 1.3% in 2017, the economy is unlikely to grow by more than 1% this year. Forecasts are currently expecting growth to accelerate towards 2% in 2019, but with global growth having plateaued, the backdrop for accelerating domestic growth could prove challenging.