GDP analysis: Bleak showing in the first quarter

StatsSA released the latest GDP figures on Tuesday and they do not make for pleasant viewing. QoQ growth was a mere 0.9%, dragged down by a -7.9% contraction in the manufacturing sector and kicked while down by the agriculture and utilities sectors (shrinking -4.9% and -3.0% respectively).

The -7.9% fall in value of the manufacturing sector is the largest decline since the second quarter of 2009. Output fell across most of the manufacturing sub-sectors, and demand for SA goods was its lowest in at least a year. The rand is currently weaker than the KPI scorecard for the Department for Women and Other Targeted Outcomes and this should offer exporters some support in the months to come.

The mining sector did grow 14.6% QoQ, but much of this was some recovery in output following the declines of the previous two quarters. The outlook for the sector is still poor over the short term: labour-management disputes are still fractious and frequent; the price of platinum is trending downwards and the gold price has fallen more than 10% in the last two months.

Were it not for the growth in mining, and the chugging along of the tertiary sector, growth for the quarter could have been even lower. Year-on-year growth was 1.9%, but this is also on a downward trend and may come in closer to 1.5% in the next quarter.

The pressure on the Reserve Bank to cut its repo rate will increase with this latest bad news, but the bank is unlikely to cut in the current climate of rand weakness. As bank governor Marcus stated in her monetary policy committee speech last week: “The current level of the exchange rate, if sustained, poses a significant upside risk to the inflation outlook.”

The bank is clearly bearish on the economy, and correctly notes that a round of interest rate cuts will not be the panacea that some think it is. It has called on all other stakeholders to “interact and address these issues and vulnerabilities at a national level. While the Bank is prepared to play its part, many of these challenges are beyond the role, scope and effectiveness of monetary policy.”

Whether cloaked in the diplomacy of the governor or in the more direct language of others, the simple truth is that microeconomic reform is needed to breathe more life into this economy, not more macroeconomic tinkering.

The kinds of reforms that have been suggested recently have unfortunately been a step in the opposite direction and are more likely to impede growth than to enhance it.

As Daily Maverick has noted before, there are unlikely to be any firm reforms before next year’s election. If anything, the political outlook is even more murky and stagnant now than it was three months ago. The much-trumped unity within the labour unions is fracturing at a fractal rate, making the balancing act within the alliance even more delicate.

This writer is temporarily out of comforting words and positive thoughts. We wish all our readers a warm and safe winter, and a smooth passage through to the other side of the upcoming elections. DM

Photo by Reuters