Tertiary Sector Boosts Q4 Growth in South Africa

According to Statistics SA, real seasonally adjusted GDP grew by an annualised 3.1% in the fourth quarter of 2011, compared to upwardly revised growth of 1.7% in the third quarter of 2011. (All quarterly data are seasonally adjusted and annualise (s.a.a). quarterly growth rates unless otherwise specified.) The boost to growth came from the wholesale, retail and motor trade, catering and accommodation industry (0.7 of a percentage point); manufacturing industry and general government services (each contributing 0.6 of a percentage point); finance, real estate and business services (0.5 of a percentage point); the transport, storage and communication industry (0.3 of a percentage point); and personal services (0.2 of a percentage point). Seasonally adjusted real value-added GDP excluding agricultural industries for the fourth quarter of 2011 increased by 3.3% following an increase of 1.7% during the third quarter of 2011. Excluding the government's contribution, growth came to 2.9% following 1% growth in the previous quarter. On an annual basis, real GDP at market prices grew at 2.6% year-on-year (y/y) in the fourth quarter, down from the previous quarter's 2.9% y/y.

According to the report, real GDP growth in 2011 came to 3.1% (in line with IHS Global Insight's estimation) following growth of 2.9% in 2010. The largest contributors were finance, real estate and business services (0.7 of a percentage point); general government services and the wholesale, retail and motor trade, catering and accommodation industry (each at 0.5 of a percentage point); and manufacturing (0.4 of a percentage point).

Primary Sector Still in Recession

The primary sector saw the fourth consecutive contraction in growth of 1.0% after a 14.7% contraction in the third quarter, which came mainly on the back of yet another slowdown in agricultural output to 5.0% following a drop of 6.9% in the previous quarter, which, according to the reports could be attributed to a slowdown in field crops and horticulture. Agricultural prospects for 2012 are looking up as a slightly larger summer crop is expected at 13.2 million tons, compared to 12.2 million tons in 2011. However, the industry faces serious headwinds in future, ranging from increasing input costs, a drop in international competitiveness and a lack of new investment as uncertainty regarding property rights prevails.

The mining sector saw marginal growth of 0.7% in the fourth quarter following the previous quarter's drop of 17.8%. This sector also faces headwinds in the form of weak global demand, rising input costs and electricity shortages, and a highly unionised labour force leading to frequent and intense labour disruptions. The primary sector's share of GDP, currently at 7.2%, is not expected to see significant improvement over the near to medium term.

Secondary Sector Treads Water

The secondary sector's share of GDP has been hovering around 20% since 2009. Of late, some improvement has come from the manufacturing sector, which posted growth of 4.2% in the fourth quarter from -0.7% in the second quarter. Besides base effects, the industry is benefitting from strong local demand and is expected to see some positive spin-off from the government's infrastructural drive over the medium term. However, an overvalued currency, excess capacity and still weak global demand are expected to limit this sector's growth in 2012.

The construction sector saw steady, albeit low growth of 1.9% following marginal growth of 1.8% in the previous quarter. Some uptick in activity in the residential market, especially smaller units, is emerging as affordability remains positive. Likewise, government investment has increased and is expected to crowd in the private sector, which will support developments in the non-residential and civil subsectors. Nevertheless, capacity constraints at local government level are leading to delays in the awarding of tenders for infrastructural spending and are expected to impede a faster pace of growth in this sector in 2012.

Tertiary Sector Boosted Growth

The tertiary sector's contribution to overall GDP stood at 62% in the fourth quarter, up from 61.3% a year earlier. The wholesale and retail sector has seen steady growth since March 2010. It contributed 0.7 percentage points to growth in the fourth quarter of 2011 and registered annualised growth of 5.2% following growth of 6.1% in the previous quarter. Thus far, consumer spending has been boosted by cash sales as credit growth has been slow. Consumers benefitted from reduced service costs on debt, above-inflation wage increases and some improvement in employment. However, this sector's momentum can be stalled by increased taxes on the wealthy, fears of monetary tightening later in the year, higher energy prices and lower real wage increases in 2012. The financial sector boosted growth with 0.5 of a percentage point to show growth of 2.3% in the fourth quarter. General government contributed 0.6 percentage points to growth and registered an annualised growth of 4.4% following 4.2% in the third quarter 2011 as the government's share of GDP moves steadily up (13.7%).

Significance and Outlook

IHS Global Insight expects growth to continue at a steady pace in 2012. The global environment seems to be finding a surer footing. Domestically, the outlook for inflation is improving as the currency sees some renewed strength and global inflation stays benign. Confidence, both on the consumer and business side, is slowly gaining momentum as employment picks up and the monetary environment remains accommodative over the near term. Investment will start to support the demand-driven growth as infrastructure investment takes off. However, the country is still critically exposed to any change in sentiment internationally, which could derail a very fragile recovery. We forecast growth of 2.9% for 2012.