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South African real GDP growth slowed to 1.0% y/y in Q3

South African real GDP growth slowed to 1.0% y/y in Q3

The South African real economic growth rate slowed to 1.0% year-on-year (y/y) in the third quarter from 1.3% y/y in the second quarter and 2.2% y/y in the first quarter, according to estimates released by Statistics South Africa (Stats SA) on Tuesday.

This puts South Africa in the middle of the BRICS growth table as Brazil contracted by 2.7% y/y in the second quarter, Russia fell by 4.1% y/y in the third quarter, India expanded by 7.0% y/y in the second quarter and China grew by 6.9% y/y in the third quarter. 

Screen Shot 2015-11-24 at 4.24.44 PM

The main reasons for the slowdown are:

  • The drought which impacted on agriculture
  • Poor commodity prices which impacted on mining
  • Lousy project execution which meant that new electricity generation capacity is more than three years late.

Screen Shot 2015-11-24 at 4.24.52 PM

Policy makers can do little about the first two reasons, while the Eskom project problems are being addressed by the “War Room,” which has implemented a “Tetris” maintenance schedule that has meant that no load shedding has taken place since 14 September 2015.

South African Finance Minister Nhlanhla Nene in October reduced the government’s real gross domestic product (GDP) growth forecast to 1.5% in 2015 from 2.0% in the February 2015 Budget, the 2.4% forecast in the October 2014 Medium-term Budget Policy Statement and the 3.2 % forecast in the February 2014 budget. In the first nine months of 2015, real GDP expanded by 1.5% y/y.

This deterioration in the 2015 growth forecast is in large part due to the electricity supply constraint as the state-owned electricity utility Eskom has had to impose occasional load shedding since a coal storage sile collapsed at the Majuba power station at the beginning of November 2014. Treasury estimates that the lack of electricity supply reduces GDP growth by some 1 percentage point, ie without the electricity supply constraint the economy would have grown by 2.5%.

The Medupi power station was originally scheduled to connect to the national grid with the first of six 794 Megawatt (MW) units in 2011, but this was only achieved in August 2015. More units will come on stream in 2017 and 2018, which is why Treasury forecasts a gradual recovery in the real economic growth rate to 1.7 % in 2016, 2.6 % in 2017 and 2.8 % in 2018.

**Images from StatsSA

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