- A deceptive rebound
The rebound in Q2 real GDP growth (+3.3% q/q saar, vs. -1.2% q/q saar in Q1) is likely to be short lived since the South African economy still lacks a powerful growth engine. On the supply side, the strong pick-up in activity observed in the mining and manufacturing sectors accounted for about 70% of the acceleration in real GDP growth. Yet these rebounds should be read in light of Q1 poor readings, and are therefore hard to extrapolate. So is the surge in exports (+18.1% q/q in Q2, vs. -8.1% q/q in Q1), which is their mirror on the demand side, and can hardly continue in a persistently morose external environment. Above all, domestic demand was still anaemic in Q2. Household consumption rose only mildly, up +1% q/q saar in Q2, and investment continued to contract (-4.6% q/q saar) for the third consecutive quarter. The strong Q2 performance should therefore not be allowed to mask the recessionary pressures that continue to strain the economy.
The composite business cycle indicators reported by the South African Reserve Bank (SARB) still do not suggest that the economy is about to bottom out, and Q3 data available so far are not very encouraging. On the supply side, both the PMI and production figures suggest that the manufacturing sector is unlikely to have repeated its Q2 performance in Q3. In July-August, manufacturing production printed 1.5% below Q2 average, meaning that the sector could have contributed negatively to Q3 real GDP growth. On the demand side, retail sales (-0.4% m/m in July-August compared to the previous quarter’s average) and household lending (-4.3% yoy in real terms in August) both signalled the persistent weakness of consumption. In this environment, we continue to call for very weak growth this year and next, with South African real GDP rising barely 0.4% in 2016 and 1.3% in 2017. This forecast could even prove to be overly optimistic if political tensions continue to build.
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by Valérie PERRACINO-GUERIN