SA economy shrinks

SA’s economy shrank in the fourth quarter‚ rounding out a year of mostly poor growth. Image: Gallo Images / Foto24 / Brendan Croft
SA’s economy shrank in the fourth quarter‚ rounding out a year of mostly poor growth.

Gross domestic product (GDP) contracted 0.3% compared with the previous quarter‚ Statistics SA said on Tuesday. That brought growth for the year to 0.3% compared with 2015.

SA’s economy has been hammered in the past few years‚ rarely coming close to the 5% level the country needs to make progress in tackling unemployment. Mining and manufacturing‚ which together contribute about an eighth of SA’s GDP‚ have been one of the main factors.

Mining production shrank every month from October 2015 to December 2016‚ according to Statistics SA data. Manufacturing output has been more erratic‚ but declined twice in the final quarter of 2016.

However‚ recent purchasing manager indices have suggested activity in the sector will pick up in the coming months. Investec economist Kamilla Kaplan noted before the release of the GDP data on Tuesday that activity in the agricultural sector had been hit by the drought.

The consumer sector has also been under pressure as households struggle with high inflation — especially in food‚ as a result of the severe drought SA has suffered‚ and transport — and persistently high unemployment.

Kaplan said growth was likely to improve slowly over the next three years‚ underpinned by an expected increase in exports as the global economy improves. “Slowing inflation should provide some relief to the household financial position‚ although a meaningful rebound in consumer spending could to be restricted by the tax increases announced in the 2017 budget‚” she said.

The budget announced in February by Finance Minister Pravin Gordhan underscores the importance of improving SA’s growth rate‚ as slow growth is eroding government revenue collection‚ and government spending as a proportion of GDP is rising.

Compared with a year earlier‚ GDP grew 0.7% in the fourth quarter of 2016.

– Tiso Black Star Group/BusinessLIVE

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