South Africa avoids recession

The gross domestic product (GDP) results for the third quarter of 2015 were released by Statistics South Africa (Stats SA) this week. The results indicate that the South African economy grew by 0.7% during the previous quarter.
 
“After experiencing a 1.3% contraction in the second quarter, the marginal GDP growth in the third quarter staved off a technical recession. A recession is usually said to occur if a country experiences two consecutive quarters of GDP decline,” explained Stats SA.
 
Dr Azar Jammine, chief economist at Econometrix, agreed adding: “Even though a recession has been avoided, however, the fact is that economic growth has been dismal.”
 
Low GDP growth
 
According to Jammine, the fact that businesses were prepared for low growth assisted in the economy collapsing altogether. He noted that businesses “have conserved cash and have strengthened their balance sheets in order to survive in such a weak environment.”
 
John Loos, household and property sector strategist at First National Bank (FNB) Home Loans, pointed out that the latest GDP figures can be viewed in two ways. The first being that the country has narrowly avoided a technical recession.
 
However, Loos noted: “If one views the more smooth moving year-on-year rate of growth, the broad multi-year growth slowdown since 2012 remains in place. From 1.3% year-on-year in the 2nd quarter, the rate slowed further to 1% in the 3rd quarter. This is the slowest year-on-year growth since the final quarter of 2009.”
 
The results
 
Stats SA revealed that the sectors that contributed to the 0.7% increase were the manufacturing industry, finance, real estate and business services, and wholesale, retail and motor trade, as well as the catering and accommodation industry, which all experienced growth during the third quarter.
 
Loos highlighted that the agricultural and electricity sectors were the weak links affecting growth. The ongoing drought that the country has been experiencing impacted on growth within the agricultural market.
 
“The slowing year-on-year GDP growth rate comes as little surprise, as we have seen both our own FNB Estate Agent Survey Residential Activity rating, as well as the SARB and OECD Leading Business Cycle Indicators, pointing the way weaker on a year-on-year basis,” stated Loos.
 
South African in recession
 
The South African economy last entered a recession in late 2008 and early 2009, when GDP declined for three straight quarters: the fourth quarter of 2008 (-2.3%), the first quarter of 2009 (-6.1%), and the second quarter of 2009 (-1.4%).
 
“With growth having returned to positive levels, one can still look forward to GDP growth somewhere between 1.2% and 1.5% for this year. Unfortunately, there is relatively little hope of this type of growth being materially exceeded next year. Recent downward revisions of forecast growth by bodies like the IMF and Reserve Bank suggest that economic growth in 2016 will be little better than in 2015 notwithstanding the slight improvement in growth of many sectors in the third quarter specifically,” said Jammine.
 
Furthermore, Jammine highlighted that the effects of the drought are likely to be felt in 2016, as well as “the rising trend of interest rates and increased inflation, partly arising from higher electricity tariffs, is likely to continue weighing down on economic growth.”