DEMOGRAPHICS ECONOMY RETAIL IN SMALL TOWNS TRANSPORT AND PEOPLE TOURISM
MUNICIPAL ANALYSIS AIRPORT RESEARCH REGIONAL ANALYSIS HOUSING DELIVERY PERSPECTIVE Of SA

Economic Perspective

[National Performance]

Source: SA Reserve Bank

South African Economy: Full Quarterly Bulletin, JUNE 2018
Real economic activity in South Africa contracted sharply in the first quarter of 2018 despite the notable improvement in business and consumer confidence. Following real output growth in excess of 2.0% for three consecutive quarters, real gross domestic product (GDP) shrank at an annualised rate of 2.2% in the first quarter of 2018. This was the largest contraction since the global financial crisis. The real output of both the primary and secondary sectors contracted, while the tertiary sector grew at a much slower pace. Despite the quarter-on-quarter contraction, real GDP still grew by 0.8% on an annual basis in the first quarter of 2018.

When excluding the contribution of the generally more volatile primary sector, the real output growth of the non-primary sector contracted by 0.8% in the first quarter of 2018, compared with an increase of 2.7% in the previous quarter.

Lower field crop and horticultural production largely led to the contraction in the real GVA by the agricultural sector in the first quarter of 2018, subtracting 0.7 percentage points from real GDP growth. The commercial maize crop for the 2017/18 production season is expected to be 23.3% less than the record 16.8 million tons harvested in 2016/17, while the area planted is expected to be 11.8% smaller. Despite the notable decrease, the 2017/18 maize crop should be sufficient for domestic consumption.

Mining production contracted further at a rate of 9.9% in the first quarter of 2018, subtracting 0.8 percentage points from overall real GDP growth. The decrease in mining output was broad-based, with lower production in 10 of the 12 mineral groups, i.e. platinum group metals, iron ore, copper, nickel, other non-metallic minerals.  Gold mining production was adversely affected by the closure of some loss-making operations, exacerbated by the lower rand price of gold. Despite higher international commodity prices, domestic mining output contracted for two consecutive quarters, weighed down by ageing infrastructure, reserve depletion, regulatory and policy uncertainty, mining accidents, and the imposition of import tariffs on steel by the US.

The real GVA by the secondary sector contracted by 4.9% in the first quarter of 2018 following an increase of 3.1% in the preceding quarter. Real output shrank in all three of the subsectors, i.e. manufacturing, electricity, gas and water as well as construction.

Fairly brisk real economic activity for three successive quarters in the manufacturing sector was followed by a contraction of 6.4% in the first quarter of 2018, subtracting 0.8 percentage points from overall real economic growth. Production decreased in 6 of the 10 manufacturing subsectors, with the most pronounced decline in the subsector supplying petroleum, chemical products, rubber and plastic products. In the first quarter of 2018, non-durable manufacturing goods production decreased sharply while durable goods production increased marginally. Overall manufacturing production was constrained by slower business activity, lower sales orders, continued domestic cost pressures, and lower manufactured export earnings following the appreciation in the exchange value of the rand in the first quarter of 2018.
Consistent with the decrease in manufacturing production, the seasonally adjusted utilisation of production capacity in the manufacturing sector fell from 81.8% in the fourth quarter of 2017 to 81.1% in the first quarter of 2018.

Growth in the real output of the sector supplying electricity, gas and water reverted from an annualised rate of 3.3% in the fourth quarter of 2017 to a contraction of 0.5% in the first quarter of 2018. Electricity production declined while the distribution of water increased. Reduced demand from the electricity-intensive manufacturing and mining subsectors likely affected activity in this sector.

The real GVA by the construction sector declined further by 1.9% in the first quarter of 2018, weighed down by weaker residential and civil construction activity. By contrast, non-residential building activity rebounded, increasing for the first time since the third quarter of 2015. The real output of the construction sector has made no contribution to overall economic growth since the first quarter of 2015 due to persistent weak building and construction confidence and the absence of meaningful fixed capital investment.

Growth in the real GVA by the tertiary sector slowed significantly to 0.3% in the first quarter of 2018 from 2.7% in the preceding quarter. The slower pace of increase reflected a contraction in the real output of the trade sector while output growth decelerated in both the transport, storage and communication as well as the finance sectors. The real value added by the general government services sector accelerated slightly.

The real output of the trade sector contracted by 3.1% in the first quarter of 2018, subtracting 0.4 percentage points from overall GDP growth. Activity in the retail, wholesale and motor trade subsectors declined. Real activity in the wholesale trade subsector was mainly impacted by weaker sales of food, beverages and tobacco. Real retail trade activity also shrank, affected by lower sales by retailers of textiles, clothing, footwear and leather goods, general dealers and the ‘all other’ retailers category. Retail sales were likely impacted by the high base due to strong ‘Black Friday’ sales in the fourth quarter of 2017, the listeria outbreak, weak formal sector employment, and subdued growth in household credit extension. The real GVA by the motor trade subsector declined in the first quarter of 2018, despite improved business confidence among vehicle dealers.

Real output growth in the transport, storage and communication sector slowed to 0.9% in the first quarter of 2018. Lower activity in most of the categories in the transport subsector was offset by increases in land freight transportation and transport support services. Real activity in the telecommunications subsector maintained its upward momentum.

Growth in the real GVA by the finance, insurance, real estate and business services sector moderated from 2.5% in the fourth quarter of 2017 to 1.1% in the first quarter of 2018, mainly reflecting a slowdown in non-bank financial activity and business services. Although growth in the fee income of commercial banks decelerated, the value added by commercial banks increased at a faster pace as operating costs remained well contained. Activity in the equity market continued to expand over the period.
 
Growth in the real GVA by the general government services sector accelerated from 1.4% in the fourth quarter of 2017 to 1.8% in the first quarter of 2018, reflecting a slight increase in the number of employees in the sector over the period.