SA has officially emerged from the recession. However, the recovery remains fairly fragile, with the trade and finance sectors deep in negative territory. It will take a revival in consumer spending for these sectors to get back on their feet. That's not expected until well into 2010.
But the trend, at least, is in the right direction. The economy exceeded forecasts to notch up a 0,9% seasonally adjusted and annualised growth rate in the third quarter, thanks mainly to a rebound in manufacturing activity.
This ends the longest recession in 17 years, but still points to full-year gross domestic product (GDP) growth of just under -2% for 2009.
Kevin Lings - Consumers hurting
Substantial GDP revisions by Stats SA also show that the economy is larger, and had been growing faster, than was thought before the recession struck.
The revised growth figures are a result of a major review of GDP data by Stats SA. Most of the changes reflect the outcome of a routine five-yearly rebasing and benchmarking exercise.
Rebasing involved moving the base year in calculations from 2000 to 2005, while benchmarking reconciles high-frequency, short-term data with more accurate but less frequent data.
The most significant revisions are that:
- Real GDP growth was higher in every year from 2005 to 2008. On average, the economy grew by 4,9% and not 4,5% over this period.
- In 2008, real GDP growth was 3,7%, not 3,1% as previously estimated.
- Growth peaked in 2006 at 5,6% (previously 5,3%).
- From 2002, revisions to the level of GDP at current prices were positive in each year, the biggest being in 2005 when the economy was R27bn larger than previously thought.
These upward revisions of GDP came after SA's leading economic indicator ticked up again in September - for the sixth month in a row. The sustained upward trend suggests the economy should recover more fully into 2010, according to Stanlib economist Kevin Lings.
However, Lings is concerned at the decline in retail activity, which has fallen for six consecutive quarters, as well as the contraction in financial services. "Consumer spending remains under enormous pressure," says Lings. "At the same time, banks have significantly tightened lending criteria after the massive increase in potential bad debts. Ultimately, these trends reflect the worrying increase in unemployment."
According to Stats SA, the economy has shed around 770 000 jobs in the formal and informal sectors over the past year. "The sustainability of SA's recovery into 2010 is dependent on a pick-up in consumer spending, which itself is linked to consumer confidence and employment conditions," says Lings.
Investec economist Kgotso Radira agrees, warning that a sharp, V-shaped recovery is unlikely in SA due to the extent of job losses and company failures to date, as well as SA's depedence on global demand.
"Though the recession is technically over, we remain cautious about the pace of the recovery as key production sectors are still weak," says Radira. While the GDP data will be important in boosting business and consumer confidence, which are essential for the recovery, he notes that domestic demand is fragile.
Moreover, he feels that the better-than-expected GDP outcome closes the door on any further interest rate cuts.
Three key economic developments stand out from third-quarter GDP data.
The first is that though the revisions show that manufacturing contracted by even larger amounts in the first half of the year than was thought (-25,5% and -11,1% in the first and second quarters), it has recovered strongly.
In the third quarter it grew by 7,5% (an expansion of R6bn), making it the biggest contributor to SA's return to positive growth. It was led by the recovery in demand for petroleum, basic metals, steel and manufactured foods.
The only other two sectors to make a positive contribution were the general government sector (up 4,9%) and construction and personal services (6,1% and 3,5%).
The second striking feature is that economic activity in mining turned negative, after a temporary rebound in the second quarter, partly due to stoppages resulting from industrial action and routine maintenance, especially in the platinum sector. Agriculture, forestry and fishing nosedived by nearly 10%.
As a result, the primary sector (mining and agriculture) shrank by 7%, almost negating the 7% recovery in the secondary sector (manufacturing), while the tertiary sector (services) clawed its way back with growth of 0,8%.
The third key development is that construction is no longer growing at double-digit rates. The rates of 14,7% and 12,2% in the first and second quarters have been revised down to 10,7% and 8,7%. In the third quarter, growth slowed further to 6,1%.
The GDP release also shows how the structure of the economy has changed over the past 10 years. The biggest difference from 1995 to 2005 is the increase in the relative size of the finance, real estate and business services sector - up from 16,4% of the economy to 21,1%. The bulk of these gains were at the expense of manufacturing, which declined from 21,2% in 1995 to 18,5%.
Ranking the Analysts 2009
