Third-quarter 2012 GDP growth in South Africa has been pulled down by a fall in mining sector growth as labour unrest disrupts production in this sector.
IHS Global Insight perspective
Labour unrest in the mining sector disrupted gold and platinum production in particular.
The spillover into other sectors impacted on growth over a broad front.
Growth has been revised down and remains subject to a high level of uncertainty in the global economy.
According to Statistics SA, real seasonally adjusted GDP slowed to an annualised 1.2% in the third quarter of 2012, compared to growth of 2.7% in the second quarter of 2012 (all quarterly data are seasonally adjusted and annualised (s.a.a) unless otherwise specified). According to the figures, the largest contributions to quarter-on-quarter (q/q) growth were finance, real estate, and business services, and general government services, each contributing 0.4 of a percentage point; the agriculture, forestry, and fishing industry, the manufacturing industry, the wholesale, retail, and motor trade, and the catering and accommodation industries, each contributing 0.2 of a percentage point; and the transport, storage, and communication industry, and personal services, each contributing 0.1 of a percentage point respectively. However, negative contributions to growth came from the beleaguered mining sector, deducting 0.6 of a percentage point. Annually, real GDP at market prices grew at 2.6% year-on-year (y/y) in the third quarter, slightly down from the previous quarter's 2.8% y/y.
Mining contracts in Q3
The mining sector's contraction and slower growth in the agricultural sector in the third quarter knocked the primary sector back into negative territory after breaking out of its recessionary grip in the second quarter. The primary sector contracted by 7.1% after strong growth of 24% in the second quarter. The mining sector dropped a stellar 12.7% from growth of close to 31% in the previous quarter as production in gold and platinum mines in particular was disrupted by illegal strikes and violent labour action. It is widely accepted that these disruptions to production continued until deep in the fourth quarter, which bodes ill for growth overall. Slow global growth and sideways moving commodity prices are also expected to impede the recovery in this sector, negatively influencing the outlook for this sector in 2013 as well. In the longer term, investment in the sector is also likely to be negatively affected by the prevailing policy uncertainty in the country. The agricultural sector benefited from improved supply conditions, leading to positive – albeit slower – growth of 7.4% in the third quarter, compared to 9.3% in the second quarter.
Secondary sector shows mediocre growth
The secondary sector, making up one-fifth of South Africa's results, showed a slight recovery from the second quarter of 2012, coming in at 1.5% after contracting 0.5% in the second quarter of 2012. Manufacturing growth of 1.2%, albeit up from -0.8%, still disappointed. The impact of ongoing Eurozone troubles – a major trade partner for South Africa – coupled with pullovers from the labour disruption, will continue to restrict growth in this sector. Growth in the construction sector remained steady at 3.3% from 3.4% previously, while the electricity sector saw mild growth of 1.6% from -4.3% in the previous quarter. All in all, the improvement in secondary sector data is merely seen as a slight correction from the previous quarter's contraction and not really a sign of fundamental growth.
Tertiary sector slows
The tertiary sector, making up two-thirds of overall GDP, again slowed in the third quarter as many of the sub-sectors saw a slowdown in growth. The wholesale and retail trade sector grew at 1.7% slower than the 2.7% recorded in the second quarter of 2012 – a continuation of the slowing trend that began in the last quarter of 2011. This points to a marked decrease in consumer spending as high personal debt levels, employment uncertainties, and cost increases, especially for services, impacted on personal disposable income, despite low interest rates. The transport and finance sectors reflected the slowdown on overall real activity in the economy as they slowed to 1.1% from 2.2% and 1.8% from 2.1% respectively. The government also experienced a slight increase in activity to 2.7% growth from 2.5% in the previous quarter.
Seasonally adjusted and annualised quarterly growth in industries (%)
Wholesale and retail trade
Outlook and implications
The significant impact of disruptive labour actions across many sectors in the economy cannot be denied. This continued into the fourth quarter and will result in lower annual growth for South Africa in 2012 than previously expected. IHS Global Insight now expects growth in 2012 to reach 2.4%, with a larger downward revision to the 2013 figure (3% from 3.4% previously) as not only spillovers from these actions are expected to impact on growth, but also a tighter financial environment as inflation trends up, signalling tightening monetary policy. Additionally, employment is negatively impacted by companies laying off employees as margins will come under pressure from raised input costs, especially labour costs.
Good news comes in the form of the leading business indicator showing an increase for the second month in a row, albeit marginally, with stabilisation in global growth conditions no doubt contributing to this slight positive trend. However, uncertainty in the economy remains high and growth is still very fragile, which will keep the outlook constrained for some time.