"South Africa\u2019s GDP improves, but worst not over for economy"

" \n The South African economy recovered lost ground in the third quarter boosted by productive sectors, but the latest figures hide an ugly reality: difficult times lie ahead. \n \n\n \n For starters, while chief economists Isaah Mhlanga and Chifipa Mhango both welcomed the third-quarter growth of 13.5%, they point out it came from a low base. That is important because of the drastic second-quarter contraction of 51.7%. \n \n\n \n Mhlanga, the chief economist at financial services company Alexander Forbes, tells\u00a0 The Africa Report \u00a0that in rand terms the South African economy went up R353bn ($23.5bn) in the third quarter, compared to the R512bn contraction documented in the second quarter. \n \n\n \n This means \u201cwe recovered just over half of what was lost in the second quarter,\u201d according to Mhlanga. \n \n\n \n Looked at historically, the dismal second-quarter performance meant South Africa\u2019s GDP dropped to levels last recorded in the second quarter of 2007. The third-quarter outcome is in line with where GDP was in the second quarter of 2018. \u201cWe have some way to go before we recover all the lost GDP,\u201d says Mhlanga. \n \n\n \n Statistics South Africa (Stats SA), the government statistics agency, released the country\u2019s third-quarter GDP figures on 8 December. The annualised rate was 66.1%, but the quarter-on-quarter measure showed a 13.5% improvement in economic growth. \n \n\n \n The annualised rate of 66.1% is better than the consensus expectation of 54.4%. Mhlanga explains: \u201cWe need to note \u2026. [the numbers] are recovering from a very low base and the numbers are annualised. Nonetheless, the production side performed well.\" \n \n\n \n He continues: \u201cBut we did not see the same level of performance in the service sector. Largely because it\u2019s impacted by social-distancing measures \u2013 as we now see in Nelson Mandela Bay \u2013 that impacted GDP much more compared to the production sector.\u201d \n \n\n \n Sector contributions \n \n\n \n Improvements in, among others, manufacturing, mining, exports and construction helped lift the third-quarter GDP performance: \n \n\n \n Manufacturing was boosted by \u201cbasic iron and steel, non-ferrous metal, and metal products and machinery; petroleum, chemical products, rubber and plastic products; transport equipment; and food and beverages,\u201d wrote Stats SA. \n \n\n \n Mining benefited \u201clargely on account of the easing of local and global lockdown restrictions,\u201d explained the statistical agency. This saw the sector increase production in platinum group metals, iron ore, gold, manganese ore and diamonds. \n \n\n \n Precious metals and stones; machinery and equipment; mineral products; and base metals contributed to the increase in exports, while construction was helped by \u201cresidential buildings, non-residential buildings and construction works,\u201d according to Stats SA. \n \n\n \n Truth of the matter \n \n\n \n Alexander Forbes\u2019 economist Mhlanga points out: \u201cAll in all, it is good numbers. But it\u2019s not yet time to celebrate, to say we are now on our way to recovery. We are still far from where we were at the beginning of the year \u2013 about 5% lower.\u201d \n \n\n \n South African exports also benefited from an improvement in economic activity in China. The Chinese have ramped up infrastructure investment, which requires commodities. That has helped in terms of demand and price recovery. These are factors that have enabled mining companies to increase production in South Africa. \n \n\n \n \u201cThat, in part, explains the recovery in the mining sector. We do partially manufacture some of the metals, which means mining has a positive impact on manufacturing,\u201d says the Alexander Forbes chief economist. \n \n\n \n Chifipa Mhango, the chief economist at Steel and Engineering Industries Federation of Southern Africa, says: \u201cFrom a metals and engineering (M&E) sector perspective, we are encouraged to see the rise in construction activity in the third quarter. The construction industry is one of the key market segments for M&E industry products and accounts for over 60% of the local steel industry\u2019s sales volumes,\u201d adds Mhango. \n \n\n \n However, \u201clocal demand remains weak, [and] export markets offer opportunities for the M&E industry,\u201d according to Mhango. Crucially, \u201cthe M&E sector is heavily reliant on the performance of the mining, construction, and other manufacturing sector segments to survive,\u201d Mhango explains. \n \n\n \n Alexander Forbes\u2019 Mhlanga offers a similar assessment about construction. \n \n\n \n \u201cAs far as the domestic construction sector is concerned, it\u2019s coming along from a low base,\u201d notes Mhlanga, \u201cit has been in recession for longer than all the other sectors. Coming from a low base, any slight improvement with the project pipeline that has been there for the last two years will show up as a significant rebound.\u201d \n \n\n \n More labour market pains anticipated \n \n\n \n Job losses are another South African reality. Mhlanga warns that the country should brace for more of the same going into 2021. \n \n\n \n A significant number of businesses have launched liquidation processes, most of which were delayed because of the hard lockdown. Since the hard lockdown has ended, most of those companies are concluding liquidations. \n \n\n \n Added to that, Mhlanga predicts most companies will be reluctant to increase staff headcounts. Instead, companies are more likely to search for more efficiencies either through retrenchments or by adopting more digital processes to minimise the need for labour. \n \n\n \n \u201cEmployment generation is going to be quite slow. We should continue to expect an unemployment rate that rises to anywhere between 35%-40% over the next two years before we can see an improvement,\u201d Mhlanga says. \n "

"South Africa\u2019s GDP improves, but worst not over for economy"

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