Second quarter boost may be ‘economic mirage’

South Africa’s second-quarter GDP growth is not necessarily good news as it does not necessarily amount to real growth. Statistics South Africa (Stats SA) data put the country’s economic growth at higher than expected at 3.3% after a 1.2% contraction in the first quarter of 2016.

But economist Dawie Roodt said: “What has happened in the second quarter is that we are just returning to normal after a lot of disruption in the first quarter. “The issue with the GDP calculation of the second quarter is that it comes off a very low base. In a way, we are correcting what was an unusually weak first quarter.”

Markets had anticipated a growth of 2.7% in the second quarter compared with the first, but with the manufacturing and mining sectors growing 8% and 11% respectively, the economy escaped a technical recession (negative GDP growth in two consecutive quarters) in the first half of the year.

Roodt added that political instability could spell trouble for the economy and the second quarter growth rate was unlikely to be repeated.

“My suspicion is that the fallout following Nenegate and the subsequent political instability and uncertainty impacted economic activity in the first quarter. “There was a bit of instability in the second quarter, but the rand has been coming back nicely and now, suddenly, in the third quarter there is political turmoil all over again.”

The two sectors which contracted in the second quarter were agriculture, forestry and fishing (-0.8%); and electricity, gas and water (-1.8%). The agriculture, forestry and fishing sector has been in decline for six consecutive quarters.

Roodt said that changes in the farming sector may have contributed to the down trend. “Agriculture is a very volatile sector, but it has been unusual for it to be under so much pressure for so long.

“My suspicion is that smaller, underproducing farmers have been selling to larger commercial farms and that agriculture is becoming more concentrated into mega-farmers.

“This is not a bad thing because the mega-farmers are more productive in the long run,” the economist added.