Is Ramaphoria over before it started?
Disappointing GDP figures for the first quarter of 2018 show that Ramaphoria has not yet impacted the real economy, says Citadel Chief Economist and Advisory Partner Maarten Ackerman.
Seasonally adjusted and annualised figures revealed that South Africa’s economy contracted by 2.2% from the previous quarter, bringing real economic growth for the year to March 2018 to just 0.8%.
“Weak Q1 growth will definitely put the 2018 growth targets outlined in February’s Budget Speech under strain, and could result in National Treasury’s fiscal targets being missed,” he warns. “Missing these targets would then place South Africa at increased risk again of further credit rating downgrades.”
He observes that muted annual GDP growth is particularly concerning given that economic growth is still falling behind the population growth rate, meaning that South Africans as a whole are becoming poorer.
“The big question now will be whether we can avoid a contraction in the second quarter of 2018 as well, which would push South Africa into a technical recession.”
He notes that the biggest boost to GDP was 1.8% growth in general government services on the back of increased public sector employment, which doesn’t bode well for South Africa’s fiscal targets or government’s ability to address the bloated government wage bill.
The greatest detractors from GDP were primary industries which declined 13.8% since the previous quarter, followed by secondary industries with a contraction of 4.9%, while tertiary industries saw muted growth of just 0.3%.
“As expected the tailwind from last year’s strong agricultural rebound faded in the first quarter of this year, contributing to the decline seen in the primary sector, while exports also struggled given the appreciation of the rand during the period. This movement also appears extreme given that the previous measurement was taken from a particularly high base.”
“However, the contraction in the primary sector is still particularly worrying given that the growth of primary industries is key to addressing unemployment and poverty, especially among low-skilled workers.”
The rand weakened by more than 10 cents against the dollar immediately following the release of the GDP figures, demonstrating market disappointment with poor progress made in the year to date to stimulate the local economy.
Ackerman emphasises, however, that sluggish economic figures demonstrate that investors need to have more realistic expectations of the changes currently being implemented by new leadership.
“Changes such as the efforts being made to provide greater regulatory certainty, reduce unemployment and promote investment are all encouraging, but these changes may take months, if not years to bear fruit given the structural issues in the economy.”
“To date, government’s leadership change has had a hugely positive impact on confidence and trust, but we need time to turn the economy around.”
He notes that one positive to be drawn from today’s figures is the increase in household expenditure by 1.5%, pointing to continued consumer resilience despite the current difficult economic environment.