South Africa: Mining Is To Blame‏ For Slowed GDP Growth In Q3

Statistics South Africa today released Q3 GDP numbers. GDP growth in Q3 slowed considerably, as the economy grew an annualised 1.2% compared to the upwardly revised 3.4% in the previous three months of the year. The main drag on growth came from the mining sector, where production almost stood still in Q3 due to widespread strikes in platinum, gold and other mines.

Details
Today’s release of the Q3 GDP numbers surprised quite a bit on the downside (though fairly close to our expectations), as the economy grew only an annualised 1.2%, down from the revised 3.4% q/q in Q2 and less than the consensus of 1.5% q/q. On not seasonally adjusted data Q3 GDP slowed to 2.3% y/y, down from the upwardly revised 3.1% y/y in Q2. The imminent market reaction was quite significant with yields and rates down and ZAR weaker. That said, ZAR held up quite well up despite the much worse than expected outcome, mainly because it was supported by risk appetite in the financial markets today.

Assessment and outlook
When we look at the breakdown of the GDP number, Q3 growth was primarily affected by the mining sector, as production was hard hit by strikes in platinum, gold, coal and other mines. That said, the breakdown also shows that - despite a moderate slowdown - most of the other sectors seemed to be holding up quite well.

Some slowdown was obvious in agriculture and also in wholesale and retail, pointing to a weakening of private consumption. To sum up, even though the headline Q3 GDP number looks quite dismal at first glance, a closer look reveals it is not that bad. If we strip off mining, the South African economy would still show decent growth, albeit well below its potential.

What implication does today’s release have for the monetary policy? In our view, the South African central bank will most likely opt for a wait-and-see approach to see how – especially - inflation develops. Furthermore, given that the risk perception of Sout Africa remains elevated on the back of the violent labour unrest and political uncertainty, the South African central bank is poised to remain cautious.

The rand will remain volatile and vulnerable to shifts in risk sentiment in global markets but the short-term risks are mainly related to domestic events, i.e. the ruling African National Congress conference that starts on 16 December. Here undoubtedly some populist policies, such as nationalisation of banks, mines and telecommunication companies, will be debated.

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