Clear and robust downward trend in construction GDP
The South African economy exited the technical recession, growing by 2.5 percent in the second quarter of 2017, which was much better for all sectors of the economy, except the construction sector, which was the only sector to exhibit negative GDP growth in the second quarter. This is largely in line with expectations, with Industry Insights project data, as well as the building plans data from Stats SA suggesting a more depressed outlook.
Construction GDP declined by 0.5 percent in the second quarter, marginally better than the 0.8 percent decline in the first quarter. There has been a clear and robust downward trend in the construction GDP figures over the last 8-12 quarters, with growth declining quarter by quarter, and entering negative territory this year.
The primary sector of the economy performed well in the 2nd quarter, with the agricultural sector bouncing back significantly, growing by 33.6 percent, which is the biggest quarterly change in more than 20 years. Rainfall has returned to most of the country, and record maize harvests for example, have been recorded. Unfortunately the agriculture industry only makes up between 2 and 3 percent of total GDP so was not enough to give a significant boost to the economy, contributing 0.7 percent to the 2.5 percent growth. The mining sector grew by 3.9 percent in the 2nd quarter, off a big 13.1 percent increase in the first quarter supported by an uptick in the global economy ad commodity prices, on average. The manufacturing sector grew for the first time in four quarters, following three back to back declines. The 1.5 percent growth in the 2nd quarter comes as some relief given the sheer magnitude of the sector. The electricity and water sector grew by 8.8 percent, and the construction sector as mentioned, was one of the only sectors to decline. Overall a mixed performance of the secondary sector of the economy in the 2nd quarter.
Finance, real estate and the business services sector also bounced back along with the rest of the services industry in South Africa, growing by 2.5 percent. Wholesale and retail trade, which surprised largely on the downside in the first quarter, is back into positive territory and grew by 0.6 percent. The only other category/sector to contract was general government services, which contracted by 0.6 percent, from a 0.7 percent contraction in the first quarter. Some commentators are suggesting that this may be some sort of turning point for the economy, but we would be very cautious to use such language. The South African economy is still plagued by a crisis of confidence as well as some serious structural issues which have been highlighted over the past two years. The rating agencies remain one of the main protagonists in the story, and policy uncertainty remains rife.
Source: Industry Insights