If the bleak first-quarter GDP figures are anything to go by, companies’ domestic results across several sectors will not look good for the first half of this year – unless the second quarter stages an unexpectedly strong recovery.
As the experts trawl through the details of the big "R" story that Tuesday’s GDP figures tell, it’s becoming clear that the malaise of SA’s economy is much more broad-based than many might have realised. That’s certainly the case with the consumer and services sectors, which tanked, to the shock and horror of many in the market. But it turns out to apply even in the case of mining – which is one of only two sectors that showed growth.
The mining sector had been in decline for three of the past five years and two of the past five quarters. But it seemed, happily, to bounce in the first quarter, growing at almost 13% seasonally adjusted and annualised, thanks to higher gold and "other" metals including platinum, according to Statistics SA.
Sadly, however, the story behind the story is not nearly so cheerful – and it probably ties in with the experience of people in the industry who are seeing more cost cuts, more pressure on jobs, disappointing export sales and a complete dearth of investment.
In theory, says Chamber of Mines economist Henk Langenhoven, the mining sector should have had a good quarter, with the global economy apparently on the mend, commodity prices bottoming and the commodity price index in rand terms improving 20% during the first quarter of 2017.
Sales of SA’s key export commodities – iron ore, coal, platinum and gold – should have continued to rise and to earn more in rand terms; profits should have improved off a low base (2015 saw the industry post losses totalling R40bn) and the industry should have increased output to take advantage of higher prices.
In practice, the nominal value add for the sector – which is what feeds into the GDP numbers — actually contracted by R13.5bn, a decline of 16%, the figures show. That indicates that mining is simply not recovering, says Langenhoven.
It looks as good as it does in the GDP figures, first, because of the annualisation – a 3% increase from the last quarter of last year to the first quarter of this year translates into growth of more than 12% — and because of the seasonal adjustment, the technical details of which only Stats SA really understands.
Mining’s poor performance in nominal terms might be one reason why exports decreased 3.2% during the quarter.
Economists and analysts expecting mining and commodity exports to help lead an economic growth recovery this year might want to take another look. They will certainly take note, too, of the first-quarter crash in the consumer sectors of the economy. Stats SA’s measures of the production (supply) side of the economy show that "trade, catering and accommodation" was the largest negative for GDP, decreasing almost 6%. On the expenditure (demand) side, household spending swung sharply to a decrease of 2.3% in the first quarter, from an increase of 2.2% in the fourth quarter.
"The consumer is under massive pressure," says Investec Asset Management’s Nazmeera Moolla, who cites continued job losses, weak wage growth and the recent tax hikes, warning that the consumer has no further ability to absorb tax hikes.
As the banks and some of the retailers see it, consumers shouldn’t be absorbing too much more credit either — which is why lending criteria have tightened and credit growth has slowed. It might also be one of the reasons why the financial and business services sector of the economy contracted in the first quarter for the first time since the global financial crisis.
Companies are surely going to be even less inclined to invest, or households to spend, so it could become a vicious downward spiral. Getting out of the spiral is as much about SA’s politics as it is about its economics.
•Hilary Joffe is editor-at-large.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.