Commentary on the GDP Announcement


Real GDP growth contracted more than expected (-2.2%) during the first quarter of 2018, following three successive quarters of above 2% quarter-on-quarter growth. This slowdown relative to last quarter’s 3.1% expansion is in contrast with constructive leading economic indicator readings during the first three months, the most notable of which was a sharp rebound in consumer confidence to a record high level.


Household consumption, which tends to be a stable and meaningful contributor to GDP growth, reflected the uplift in sentiment, with this component of GDP remaining robust for the quarter (contributing +0.9% to growth). In addition to improved sentiment, rand strength as well as lower inflation were helpful in boosting disposal incomes and encouraging consumer spending. Government spending, investment and the change in inventories on the other hand had a muted effect on growth, while a sharp drop in net exports for the quarter was a material detractor (-3.1%).


On a sector level, the primary sector contracted in Q1, following a strong rebound in previous quarters. Manufacturing was also weak, further weighing on growth. Declines in agricultural and mining production, as well as a drop in basic materials-related manufacturing contributed -2.3% to GDP growth for the quarter, with the other sectors adding a combined +0.1%.


Though economic growth fell short of consensus expectations, we expect the first quarter setback to reverse later this year, and are encouraged by the rise in consumer and business confidence, as well as improved consumer spending. These bode well for growth over the remainder of 2018, which could surprise positively if coupled with a revival in investment and business activity.





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