South Africa ends recession

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By Cees Bruggemans, Chief Economist FNB

After three quarters of negative growth, the South African economy grew by 0.9% annualized during 3Q2009, better than the consensus expectation of +0.5%.

Some 55% of economic sectors (by GDP weight) drove the growth, led by manufacturing +7.6%, electricity +4%, construction +6%, government +5%, personal services +1.5% and communication +1% (quarterly annualized).

The remaining 45% of sectors (by weight) kept growth down with their ongoing declines, led by agriculture -9.8%, mining -5.8%, retail, wholesale and motor -1% and finance -1.5% (quarterly annualized).

Due to rebasing of surveys (using 2005 rather than 2000) and new estimates, some of the historic data changed, though not shockingly.

The recession turned out to have been deeper, with GDP falling 7.4% annualized in 1Q2009. Then again the preceding boom turned out to have been better than ever imagined, with 2005-2008 on average adding 0.4% to their annual growth rates, for instance 2008 showing 3.7% rather than 3.1% GDP growth.

Sectors seeing their growth boosted during 2002-2008 included manufacturing, electricity, finance and government services. In contrast, sectors doing more poorly than originally shown included agriculture, construction and the various trade sectors.

Regionally, the top performers showing 4% or better GDP growth in 2008 were Gauteng, KwaZuluNatal and Western Cape. The other regions could only achieve 2%-3% growth, with Northern Cape the poorest performer.

Looking towards 4Q2009, and to 2010 generally, the sectors with the best potential to do better are probably mining (recently very volatile, but the global upturn supporting its outlook) as well as the trade sectors and financial services. Though the latter two are expected to improve only gradually, they should eventually be favoured by rising real incomes and the interest rate easing of earlier this year connecting more meaningfully.

With the first three quarters of 2009 showing GDP decline of -1.8% year-on-year, and 4Q2009 expected to show growth over a declining base a year ago, the year 2009 as a whole could show GDP of -1.6%.

Expected GDP growth for 2010 remains low near 2%, as construction can be expected to lose some more momentum, while mining, the trade sectors and financial services should gain momentum (slowly?), with agriculture uncertain but likely to be volatile.

We must now await the SARB spending estimates for 3Q2009 per the Quarterly Bulletin, to see how this GDP output performance splits between household consumption, fixed investment (private and public), inventory changes and net trade movements.

Source: Cees Bruggemans, FNB, November 24, 2009.

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