Seifsa laments economy’s relapse into negative growth territory

3rd December 2019

By: Creamer Media Reporter


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Despite the apparent recent political will and numerous promises from policy makers to address upside risks to the South African economy, concerns still remain about whether the economy will improve on the recent poor performance in real gross domestic product (GDP) for the third quarter of 2019 and achieve a solid rebound, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Chief Economist Michael Ade said today.

According to latest GDP figures released by Statistics South Africa this morning, the economy contracted by 0.6% quarter-on-quarter (seasonally adjusted and annualized) in the third quarter of 2019, following a revised increase of 3.2% in the second quarter of 2019. The broader manufacturing sector (including the diverse metals and engineering industry) was, notably, amongst the three largest negative contributors to the dip in real GDP during the third quarter, contributing -0.5 percentage point.

Speaking after the release of the figures, Dr Ade said disturbingly South Africa’s 2019 growth trajectory seems to be very volatile, especially given recent heightened fears that the country may once again have entered a technical recession in the second half of the year, in much the same way as in 2018.

“The negative trajectory of the local economy in the third quarter is deeply worrying and should be improved upon by sustained interventions in employment and growth-enhancing sectors, as well as fiscal policy measures to spur further growth,” Dr Ade said.

He said as the Government continues to address numerous challenges that have resulted from years of poor economic management and graft at the macro level, challenges affecting firms at the micro level must equally be addressed.

“Continuous improvement is key in order to support industrial production which has been in the doldrums over the last five years, including a significant part of this year, underpinned by increasing costs, poor business perception, nondescript operatational activity, poor competitiveness, low business expectations and volatile but downwardly sloping selling prices,” he said.

Dr Ade said measurable and constant improvements in gross fixed capital formation – implying new investments – as opposed to pledges, is a sine qua non for the gasping economy.

Reassuringly, gross fixed capital formation increased by 4.5% in the third quarter of 2019, for the second quarter in a row, from the 6.1% recorded in quarter two, following five consecutive declines until then. However, Dr Ade said there remains a need to diversify invesment trends away from the traditional contributors such as the machinery and equipment and transport equipment, to labour-intensive sectors of the economy.

He added that the next five months are important for South Africa’s economy, with the government focusing on resolving what is increasingly becoming tip-of-the-iceburg crises at State-Owned companies, including at Eskom and South African Airways.

“Accordingly, the budget to be delivered in February will attract much interest locally and internationally as stakeholders look for signs of further fiscal mishap or profligacy. That critical budget will also be followed by Moody’s Investors Service’s review of the country’s credit ratings in March 2020,” Dr Ade cautioned.

Edited by Creamer Media Reporter


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