South African Q4 14 GDP outperforms post strikes

Q4:14 outperforms post strikes

Q4:14 GDP grew 4.1% q/q (1.3% y/y), up from a revised of 2.1% q/q (1.6% y/y) in Q3:14 (previously 1.4%). This was slightly higher than our and consensus estimates of 3.9% q/q and 3.8% q/q respectively. On average the economy expanded 1.3% q/q and 1.5% y/y in 2014, slower than 2.8% q/q and 2.2% y/y in 2013. The slowdown in growth was broad based, led by mining and manufacturing, and all sectors underperformed except for construction, transport and communication and agriculture (figs 5 &9).
As expected based on the monthly data releases for Q4, the production side of the economy outperformed consumption, reversing the trend evident in recent years (fig 2):
- Mining and Manufacturing both accelerated post the strike in the first half of the year, by 15.5% q/q and 9.5% q/q respectively, adding a combined 2.3ppts to growth, versus a combined 0.2ppts in Q3:14, -0.7ppts in Q2:14 and -2.5ppts in Q1:14 (figs 3 &4).
- Trade and hospitality contracted 0.3% q/q in Q4:14, down from robust growth of 3.4% q/q in Q3:14. For the year, growth averaged 1.1% q/q and 1.3% y/y. We expect trade will perform better in 2015 on the back of lower petrol prices, however growth in 2016 (figs 3, 4 &5).

Upside surprises in Q4:14 came from construction, which accelerated unexpectedly from 2.2% q/q in Q3:14 to 3.5% q/q in Q4:14 and averaged 2.9% q/q for the year; and finance, which grew 3.5% q/q, up from 2.4% q/q in Q3:14 after averaging 1.3% q/q in the first half of 2014 (fig 5&9).
Nominal GDP slowed from 7.1% y/y in Q3:14 to 6.9% y/y in Q4:14 as a result of slower real GDP, while the deflator remained flat at 5.5% (figs 7&8). For the year, nominal GDP slowed from 8.3% to 7.4%, we expect it will moderate to around 6.5% in 2015 due to lower inflation (fig 8).
SA’s GDP growth in perspective: In US Dollar terms, South Africa’s GDP has been slowly slipping as a percentage of the world’s GDP. In 2013, SA accounted for 0.46% of world GDP, down 0.52% in 2012 and 0.56% in 2011 (fig 10).
Looking ahead we expect growth to pick up in 2015 and average 2.3% y/y. This is based on our calculations with respect to the effects of the oil price, which should reduce imports by R57Bn and save the consumer around R30Bn.
Prior to the fall in the oil price, we had expected growth in cyclical consumption (durable and semi-durable goods) to trough in 2H2015. This slowdown was based on increased headwinds, as the full effect of interest rate hikes in 2014 is felt by the consumer in 2015, and on expected job losses in mining and manufacturing, partly due to low commodity prices combined with above-inflation wage-rate settlements last year and partly due to Eskom load shedding and continued de-industrialisation. Fiscal constraints are also expected to reduce public sector employment.
Considering these factors, we had estimated PCE growth of 0.8%. However, post the fall in the petrol we have adjusted our estimate of PCE to 2.4% y/y in 2015.
Potential GDP and fixed investment: The uncertainty with respect to electricity, politics and labour has brought investment to a halt and has reduced SA’s potential GDP to 2.3%, according to a SARB research paper

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