PwC warns third-quarter GDP data likely to be ‘disappointing’

2nd December 2019 By: Simone Liedtke - Writer

Of the 14 indicators in analyst firm PwC’s sectoral insights, published ahead of the release of gross domestic product (GDP) data on Tuesday, only wholesale trade and civil construction showed improvements in the third quarter.

This, PwC said, “sends a clear warning” that GDP data for the third quarter would likely be disappointing, a situation that would also probably continue into the fourth quarter.

PwC’s assessment is in line with a warning from the South African Reserve Bank last month, which stated that “indicators suggest that economic activity will remain weak for the rest of the year”.

Statistics South Africa (Stats SA) will release South Africa’s third-quarter GDP data on December 3.

According to PwC’s assessment, the country’s economy expanded by 3.1% quarter-on-quarter during the second quarter, marking a better-than-expected outcome and which allowed South Africa to “ward off a dreaded recession”.

The largest contributor to this recovery in GDP was a 14.4% quarter-on-quarter rebound in mining activity, the first positive reading in a year.

Based on the quarter-on-quarter changes in real GDP, PwC said on Monday that the South African economy was 0.9% larger year-on-year during the second quarter, marking a “notable recovery” from the 0% year-on-year number recorded in the first quarter.

However, PwC warned that analysts have commented recently that the high-frequency data suggested a weaker GDP in the third quarter, compared with the second quarter.


The South African real retail sales increased by 1% year-on-year in August, and 0.2% year-on-year in September, with an average increase of 1.1% year-on-year during the third quarter.

Sales momentum softened from a 0.8% quarter-on-quarter expansion in the second quarter to a 0% quarter-on-quarter reading for the third quarter.

Retail sales, meanwhile, were weighed down by weak consumer confidence and rising unemployment, as well as slow wage growth and rising administered prices.

After increasing by 6.7% year-on-year in July, real wholesale trade declined by 4% year-on-year in August and 3.9% year-on-year in September. Sales declined by an average of 0.4% year-on-year during both the second and third quarters.

However, PwC noted that “there was a hint of momentum building” with sales having grown by 2.9% quarter-on-quarter during the third quarter, compared with only 0.8% quarter-on-quarter during the second quarter.

Wholesale volumes increased quarter-on-quarter in the third quarter as retailers stocked up ahead of Black Friday and Cyber Monday, with consumers expected to spend an average of 36% more during this shopping event compared with 2018.

Manufacturing production volumes declined by 1.5% year-on-year in August and 2.4% year-on-year in September, with an average decline of 1.5% year-on-year in the third quarter. Factory output, meanwhile, expanded by 0.6% year-on-year during the second quarter but contracted by 0.9% year-on-year during the third quarter.

According to PwC, nine out of ten manufacturing sectors in South Africa recorded negative year-on-year numbers in September. Factories are experiencing stagnant domestic demand, increasing intermediate input costs and significant uncertainty over the outlook for the macroeconomy, PwC explained.

Mining production volumes contracted by 3% year-on-year in August and increased by 0.2% year-on-year in September, with the third quarter having experienced an average decrease of 0.4% year-on-year.

Mineral output also moved from a 3.5% quarter-on-quarter expansion in the second quarter to a 1.6% quarter-on-quarter contraction in the third quarter.

The 0.4% year-on-year decline in the third quarter was largely owing to the sharp decline experienced in August, which, in turn, was associated with a 12.5% year-on-year drop in output in platinum-group metals.

Electrical distribution declined by 2.4% year-on-year in August and 0.5% year-on-year in the third quarter, which PwC said was “worse than in the previous quarter”.

Simultaneously, distribution growth also deteriorated from a 2.5% quarter-on-quarter increase in the second quarter to a 1.8% year-on-year contraction in the third quarter.

Electrical distribution also declined in the third quarter after State power utility Eskom increased power tariffs in July. Stats SA, PwC pointed out, measured a 10.3% month-on-month increase in the cost of electricity and other fuels during the month as the power utility made its yearly price adjustment.

Turning towards transportation, the number of new vehicles sold decreased by 5.4% year-on-year in August and 2.9% year-on-year in September, with an average decline of 7.1% year-on-year during the third quarter compared with an increase of 1.7% year-on-year in the second quarter.

PwC said this included a slowdown in sales growth in recent months, with sales volumes growing by only 7.3% quarter-on-quarter compared with an 11.3% quarter-on-quarter expansion in the preceding quarter.

Despite below-inflation increases in vehicle prices and a reduction in interest rates during July, sales volumes remained under pressure in the third quarter owing to weak business and consumer confidence, with PwC adding that “many South Africans have decided to delay vehicle purchases”.

Freight transportation tonnage declined by 2% year-on-year in August and 3.7% year-on-year in September, decreasing by an average of 2.8% year-on-year during the third quarter.

Similarly, tonnage was 0.9% lower quarter-on-quarter during the third quarter, which is weaker than the 0.7% quarter-on-quarter decrease seen in the preceding period.

Apart from challenges linked to a weak domestic economy, PwC said South Africa’s transporters were “adversely affected” by weaker global trade and export demand.

World trade volumes are also currently on their steepest decline in a decade as a result of Brexit, and the US-China trade war.