The South African economy reaped the benefits of a weaker rand as real final sales, which is gross domestic product (GDP) less the change in inventories, grew by 10.7% on a quarter-on-quarter (q/q) seasonally adjusted annualized (saa) basis in the fourth quarter after exports surged by 11.1% on the same basis, while imports plunged by 16.0%. This meant that net exports added 8.7 percentage points to GDP growth, offsetting the 8.7 percentage points decline caused by a massive drawdown in inventories as domestic producers were unable to meet external demand out of current production.
The fourth quarter inventory drawdown was the largest for quarterly data going back to 2010. The previous largest drawdown was in the second quarter 2016 when the constant 2010 rand reduction was R37.4 billion. The inventory drawdowns lead to wild swings in gross domestic expenditure. In the second quarter 2016 the drop was 4.1% followed by a 5.7% increase the subsequent quarter as inventories are replenished. In the fourth quarter 2018 gross domestic expenditure plummeted by 6.8%, so one should an increase of similar magnitude in the first quarter 2019.
The February manufacturing purchasing managers’ index saw the inventory index move above 50 for the strongest increase since March 2017 at 52.8 in February from 46.8 in January and 48.5 in December.
On a year-on-year (y/y) basis GDP growth as measured from the expenditure side eased to a 0.1% contraction in the fourth quarter due to the massive drawdown in inventories from a 0.2% rise in the third quarter, while final sales grew by 1.6% in the fourth quarter after a 0.3% decline in the third quarter. Household consumption expenditure growth was steady at 1.1% in the fourth and third quarters.
For the full year, GDP growth slowed to 0.7% in 2018 from 1.4% in 2017, while final sales grew by 1.0% in 2018 and 2017. Household consumption expenditure (HCE) slowed to 1.8% in 2018 from 2.1% in 2017.
The main reason for the poor growth is the lack of trust by private sector executives in the government’s policies after the Zuma years.
A contributory reason for the poor fixed investment performance has been the erosion in profitability as taxes, rising costs and labour eroded margins. That is starting to turn around as reflected in the rise in the gross operating surplus at the expense of wages.
This contribution to Finance Friday was made by
Forecaster Ecosa cc
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