Zero Economic Growth for South Africa in 2016

The South African economy doing is worse than the official data suggests

In the May 6th Louwdown we took a look at some unconventional economic data points for South Africa and concluded that the South African economy was doing worse than the official data suggested. It turns out that we were right and in June Stats SA reported that the economy shrank by 1.2% on an annualised basis in the first quarter of 2016. According to the latest South African Reserve Bank [“SARB”] Monetary Policy Statement, recent data suggests that the economy has stabilised and grew in the second quarter. They expect that 1Q16 was the low point in the cycle, but that the recovery is expected to be weak, so SARB’s latest forecast is for “zero percent growth in 2016”.

How each South African industry segment grew in the first quarter of 2016 (source Reserve Bank)

How each South African industry segment grew in the first quarter of 2016 (source Reserve Bank)

 

The economy isn't growing but the population is

It is important to remember that the South African population is growing around 2% per year. So, if the population is growing, but the economy is not that means that we aren’t creating jobs fast enough and as a country we are going to be worse off at the end of 2016 than we were at the end of 2015.

Summary of key South African economic data (Source: SARB MPC Statement July 2016)

Summary of key South African economic data (Source: SARB MPC Statement July 2016)

There is also a worrying downward trend in SARB’s growth forecasts.

Growth forecasts for the South African economy (Source: South Africa Reserve Bank)

Growth forecasts for the South African economy (Source: South Africa Reserve Bank)

Inflation forecasts for South Africa

Year-on-year consumer price inflation fell to 6.1% in May before rising to 6.3% in June. Importantly, food price inflation fell to 11.0% in June from its peak of 11.3% in April. Although inflation is forecast to continue to rise this year, SARB now expects it to average 6.6% in 2016 and 6.0% in 2017 compared to their previous forecast of 6.7% in 2016 and 6.2% in 2017. Inflation is expect to return to the target range of 3-6% in the third quarter of 2017.

The weak growth outlook and improving inflation picture lead the Reserve Bank to keep interest rates on hold (Repo rate 7%).

(Sources: Statistics South Africa, South African Reserve Bank)

DR ANDREW LOUW CFA