Weakness in economy becoming more broad-based

The weakness in South Africa’s economy is coming from all sectors and increasingly becoming more broad-based, says Nedbank economist Nicky Weimar.

Speaking at the eighth Integrated Housing Solutions Affordable Housing Summit, in Johannesburg, on Thursday, she pointed out that the 3.3% quarter-on-quarter growth in gross domestic product in the second quarter looked good on paper, but that GDP had grown by only 0.6% on a year-on-year basis, which was very weak.

Weimar highlighted that South Africa’s current business cycle, which started in 2009, further showed that growth had been disappointing.

“The best growth achieved in the current business cycle was in 2011 when we grew by 3.2%. As we have passed from year to year, we have been losing momentum, with the last two years being exceptionally weak,” she noted.

She pointed out that South Africa’s economy grew 1.6% in 2015 and 1.3% in 2015, noting that 2016 started in from a weak and vulnerable position, with the economy having contracted by 1.25% in the first quarter.

Weimar pointed out that the major underperformers in South Africa’s economy were the mining, manufacturing and water and electricity sectors.

“Mining is by far the worst performing industry and has been flat lining since 2012, while the water and electricity sector has been mostly stagnant and drifting downwards recently,” she said.

She added that there was a renewed loss of mining and manufacturing momentum as the country headed into the third quarter, noting that the rate of decline in the mining industry accelerated in July.

Meanwhile, the agricultural sector was also performing badly owing to the drought across sub-Saharan Africa.

Although the services industries have kept the economy going, growth in these industries has slowed over the past two years.

“The problem is that the industries that are underperforming are spreading to the services industries, because in an economy, everything is interlinked. When you have persistent pressure in certain industries, over time, they incur losses and the only option they have is to restructure,” she explained.

This, in turn, contributes to job losses. Unemployment levels in South Africa have increased to nearly 26%, with 472 000 jobs lost in the first half of the year.

“South Africa’s unemployment rate is among the highest in the world.
All industries shed jobs in the first half of the year and that pressure has started affecting demand in other industries,” she said, adding that this had led to broad-based restructuring across all sectors.