Economists at Momentum Investments say that the higher-than-expected growth number for the second quarter in South Africa should be read with caution given the low base in the first quarter of 2019 and ongoing weakness in domestic sentiment.
Growth for the second quarter of 2019 was a surprise at 3.1% in quarter-on-quarter (q/q) seasonally-adjusted annualised terms, the research team said in a note. The economy reversed the 3.1% contraction that was recorded in the first quarter of 2019.
The aversion of a technical recession, it said, could in part be explained by the restoration in electricity supply in the second quarter.
The electricity sector grew by 3.2% quarter-on-quarter in the second quarter, up from a 7.4% contraction in the first quarter, when the incidence of load shedding peaked. Eskom meanwhile, called on consumers to save energy over the summer period as the risk of load shedding remains.
The primary sector grew by a firm 9.7%. The secondary sector recorded a positive growth of 1.5%, while the tertiary sector grew by 3.0%.
Household consumption shot up by 2.8% in the second quarter of 2019, from a contraction of 0.6% in the first quarter. Eleven out of the twelve household expenditure categories contributed positively, indicating broad-based strength, Momentum Investments pointed out.
The mining sector boasted the largest improvement followed by the finance sector. The mining sector rose to a significant 14.4% in the second quarter of 2019, previously contracting 10.8%. “Mining of iron ore, manganese ore, coal and other metal ores including platinum expanded and contributed to the rebound in the sector.
Growth in the agriculture sector remained in negative territory, alongside the transport sector, which experienced a softer decline in growth, it said.
The services sector – finance, government and personal services – surprised positively, Momentum Investments said. “The spending for the national election campaign benefited growth in the government sector in the second quarter of the year.”
Momentum Investments noted that Citi Bank’s high-frequency GDP model showed that Stats SA’s monthly data for manufacturing, mining and retail sales were largely in line with the GDP results for the second quarter, however, growth in utilities underperformed relative to initial indications by the high-frequency releases on electricity production.
The official GDP number includes water and gas, which may have under performed relative to the electricity sector, it said.
The financial services firm said that the trade sector is one of two sectors boasting the highest share of employment relative to its share of nominal GDP.
The services sector however provides the most jobs and contributes the most as a share of nominal GDP.
Share of employment per industry relative to its GDP share (%)
The results of the Quarterly Labour Force Survey (QLFS) for the second quarter of 2019, published by Statistics South Africa, showed that the official unemployment rate in the country increased by 1.4 percentage points to 29% compared to the first quarter of 2019.
The number of unemployed persons increased by 455,000 to 6,7 million in Q2: 2019 compared to Q1: 2019, resulting in an increase of 476,000 in the labour force.
Employment in the formal sector and private households declined by 49,000 each. The Informal sector and agriculture on the other hand recorded increases of 114,000 and 5,000 respectively.
An increase of 21,000 in the number of people in employment in the second quarter of 2019 was mainly driven by trade (84,000), community and social services (48,000), construction (24,000) and manufacturing (9,000).
However, employment losses were recorded in private households (49,000), transport (42,000), mining (36,000) and finance and other business services (21,000).
Employment by industry
Looking ahead, Momentum Investments said it expects the momentum in the second quarter growth number to fade in the near term. “The contribution from household is likely to be unsustainable in the near term because of the influx of retrenchment announcements, weak confidence and low growth setting.
“Besides the IPP projects underway, weak business investment is explained by the uncertain political climate. As such, the second quarter gross fixed capital formation rise also seems unsustainable in the near term,” it said. It added that the slowing global economy elevates these growth concerns.
Momentum Investments has a 0.6% growth estimate for 2019, explained by the weak economic fundamentals.