The consecutive dip in the real Gross Domestic Product (GDP) during the fourth quarter of 2019, which sent the economy into a recession, was deeply disappointing, Steel and Engineering Industries Federation (SEIFSA) Chief Economist Michael Ade said.
Speaking after the release of the data by Statistics South Africa (Stats SA) this morning, Dr Ade said the decrease in the data is discouraging, especially given the need for an improvement in business activity for business to thrive.
The Stats SA data indicated that the real GDP, as measured by production, further decelerated by 1.4 percent in the fourth quarter of 2019, from a seasonally-adjusted and revised decrease of 0.8 percent in the third quarter of 2019. Worryingly, the broader manufacturing sector (including its heterogenous metals and engineering sector), the construction and the agriculture sectors were amongst the negative contributors to GDP growth in the fourth quarter, all contributing -0.2 of a percentage point to GDP growth. The only silver lining from industrial production was provided by the mining sector, which contributed 0.1 percent.
“The data officially catapults South Africa into a technical recession and compounds the challenges faced by local businesses in a tough operating environment,” Dr Ade said.
He added that despite the moribund economy, continuous support for the metals and engineering cluster of industries, including the broader manufacturing sector, is crucial because of its strategic importance. Moreover, despite their poor performances, both the manufacturing and agricultural sectors still hold huge job creation potential, with multiplier effects on other sectors, and should be continuously supported.
Dr Ade said that despite the plethora of challenges faced by companies amid spiraling operational expenses and rising intermediate input costs underpinned by high electricity and logistics costs, there is no space for apathy from captains of industry.
“The dip in the GDP – and, by extension, domestic demand – is cause for concern for domestic companies and initiatives aimed at ensuring a sustainable turnaround should be expedited. This is especially the case because the deteriorating economic growth environment makes it difficult for domestic companies to properly plan business activity in advance since their sustainability is not guaranteed,” Dr Ade said.