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New leadership in South Africa (post December last year) has seem business confidence within the country much improved. However, while business confidence has improved, the South African economy unfortunately has not. Q1 2018 Gross Domestic Product (GDP) data showed a substantial contraction in the South African economy.
While a marginal contraction in South Africa’s first quarter Gross Domestic Product (GDP) data was expected, the figure was far worse than consensus estimates had predicted. Q1 2018 real GDP, measured by production, declined by 2.2% quarter on quarter following an increase of 3.1% in Q4 2017.
The negative contributors to the figure were widespread with the Primary, Secondary and Tertiary sectors all weighing on the economy. The agriculture fishing and forestry industry was reported by Statssa as having declined by 24.2%, while the mining and quarry industry contracted by 9.9%. The manufacturing industry saw six of its ten divisions reporting negative growth rates which amounted to a 6.4% aggregate decline within the sector. The construction sector declined by 1.9% and the the trade, catering and accommodation industry by 3.1%.
There were some parts of the Tertiary sector which did manage to etch out modest growth in Q1 2018, they were as follows
- Finance, real estate and business services increased by 1.1%
- General government services increased by 1.8%
- Personal services increased by 1.2%
While our local bourse has seen a fairly muted reaction to the GDP data the Top40 Index does trade well off session highs. There has been noticeable weakening of the Rand which has shed roughly 1% against the dollar and the euro and around 1.5% against the British pound. The weakening of the domestic currency is a direct reflection on the data as the currency was relatively unmoved leading into the news event. Further evidence of the domestic catalyst is that emerging market currency peers such as the Brazilian Real and Argentine Peso trade firmer on the day while the Russian Ruble trades flat on the day.
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