Real GDP contracts for second consecutive quarter in second quarter

  • SA’s real GDP contracted for the second consecutive quarter in the second quarter, but the rate of decline at least moderated to a seasonally adjusted annualised 0,7% q-o-q from a downwardly revised 2,6% (previously 2,2%) in the first quarter, Nedbank economists said today.  The outcome was worse than market expectations of marginal growth of around 0,6% q-o-q.
  • “The supply-side breakdown of GDP shows that the main drag came from agriculture, ‘transport, storage and communications’ as well as ‘domestic trade, catering and accommodation’”, they added.
  • They noted that the expenditure breakdown of GDP showed that gross domestic expenditure declined by a seasonally adjusted and annualised 3,6% over the second quarter, hurt by weaker consumer spending, shrinking fixed investment and a rundown in inventories.  “These adverse developments completely offset the impact of a significant improvement in the country’s net export position.  Exports increased by 13,7% q-o-q, while imports rose by 3,1%.”
  • In the first half of the year the economy grew by only 0,5% y-o-y.  “Economic activity is still forecast to edge up off a low base in the second half, but the weak first half will result in slower GDP growth of around 0,5% in 2018 as a whole compared with 1,3% in 2017,” the economists added.  “Thereafter economic activity is forecast to accelerate somewhat.  On the production side, modest recoveries in mining and manufacturing will probably be the main drivers, supported by continued, albeit softer, global growth and a weaker rand.  On the expenditure side, some recovery in consumer spending, a modest turnaround in fixed investment and the restocking of inventories are forecast to offer some support to growth, but the main momentum is likely to come from an improved net export position.”
  • They said SA’s economic malaise tends to support a neutral to easier monetary policy stance.  “However, the upside risks to the inflation outlook have increased since the last Monetary Policy Committee (MPC) meeting in July.  The rand has depreciated by almost 12% against the US dollar since end-July and oil prices have increased by a further 7,9% over the same period. The risks of a near-term tightening have therefore increased.” They point out that while the underlying tone of the MPC has become more hawkish over the past two meetings, the Committee has nonetheless repeatedly stressed that its focus will be on countering any second-round inflationary effects from the currency (or other) supply-side shocks.  “Consequently, we still believe that the MPC will try to keep rates steady for as long as possible given the weak economy.  We therefore expect interest rates to remain unchanged until around September next year.  This could change if the negative factors persist.”

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