JOHANNESBURG – Global factors played a major role in swaying South Africa’s economy into a rebound in the second quarter, as the country benefited from high metal prices and uninterrupted power supply from Eskom.
The economy recovered from the significantly worse than expected performance in the first quarter to 3.1 percent in the second, beating the market consensus of a 2.5 percent growth.
The economy took a cue from gold and platinum prices that have continued to rise and continue to shine on international markets.
Gold has recorded the highest growth this year, as tensions between the US and China pushed investors into safer assets, while platinum group metals (PGMs) have risen with the price of palladium and rhodium.
Economists, however, quickly pointed out that the relief may be short-lived as no major internal factors played a role in the rebound.
Investec’s Lara Hodes said that underlying growth dynamics in the economy remained weak, especially coupled with softening international trade flows, underpinned by persistent trade tensions that continue to hinder manufacturing sector activity.
Hodes said the rebound happened against a backdrop of subdued activity and persistently low business confidence, which continued to weigh heavily on future growth prospects.
She said the gross domestic product (GDP) was unlikely to be higher than 0.7 percent for the year.
“Government finances have deteriorated to the point of risking the loss of SA’s Moody’s investment grade rating, which would further undermine economic growth,” she said.
“In order to lift sentiment and drive private sector fixed investment spend, and therefore growth, government regulatory efficiency needs to improve substantially to aid the ease of doing business in South Africa, while the hastened implementation of key reforms is essential.”
The mining sector increased 14.4percent quarter-on-quarter, adding 1 percentage point, driven by higher production in iron ore, manganese ore, coal, gold and PGMs.
This was the industry’s strongest showing in three years since the second quarter of 2016, when production jumped by 16.3 percent.
The gold price is about R740 000/kg, up R162 000/kg on the average gold price received during the financial year 2019, while the platinum price has averaged above R14 000 an ounce.
The finance, real estate and business services sector also recovered notably, growing 4.1 percent quarter on quarter while the trade, catering and accommodation and general government services sectors each contributed 0.5 percentage points in the second quarter (Q2).
NKC Research analyst Elize Kruger said that household spending also rebounded in the quarter, increasing 2.8 percent.
Kruger said overall growth prospects for 2019 remained dismal.
“Incorporating the Q2 growth figures could have a positive impact on our annual growth forecast, which we are busy reworking to incorporate this release, but this year’s expansion is still expected to be the lowest growth rate since the recession in 2009,” she said.
North West University economics professor Raymond Parsons said that the government needed to implement far-reaching structural changes to revive the economy.
Parsons said the economy needed more policy certainty to make the latest economic improvement sustainable and build on investor confidence.
He said the better-than-expected GDP figures were good news for the economy, but were nonetheless off a low base and were far too low to meet the country’s socio-economic challenges.