Think before you buy!

Tuesday, June 5, 2018

Consumers will have to tighten their belts in the months ahead, following the release of the country’s Gross Domestic Product (GDP) figures today.

“I would think that consumers should be a bit cautious and not necessarily go out and buy big ticket items at this stage. If you can afford to do that, then it would be a nice boost to the economy. If you are in the more higher indebted category, even if you think conditions will improve, perhaps it may be more prudent to wait and see if that materialises before going out and buying that big ticket item,” senior economist at the Bureau for Economic Research (BER), Hugo Pienaar told SAnews.

Pienaar’s comments for consumers to hold off from buying big ticket items come as Statistics South Africa (Stats SA) data released on Tuesday showed that South Africa’s GDP contracted by 2.2% in the first quarter of 2018 following an increase of 3.1% in the fourth quarter of 2017.

The data showed that agriculture, mining and manufacturing industries were the largest negative contributors to growth in GDP.

Agriculture, forestry and the fishing industry decreased by 24.2% and contributed -0.7 of a percentage point to GDP growth. The mining and quarrying industry decreased by 9.9% and contributed -0.8 of a percentage point. The manufacturing industry decreased by 6.4% and contributed -0.8 of a percentage point.

The disappointing numbers were lower than market consensus had predicted with six of the ten industries registering a drop.

“Obviously it’s a very disappointing number. Look, we did expect a contraction in the first quarter and the consensus was for a contraction but certainly not to the extent that we’ve seen,” said Pienaar of the broad based weakness seen in the first quarter.


He said the data, which was released at a media briefing in Tshwane, while they do put a damper on the “Ramaphoria” (which came with the appointment of South Africa’s new President Cyril Ramaphosa) phenomenon, they do not necessarily mean a downward spiral.

“The point I’m making is that certainly this weak number may put a damper on some of the optimism we’ve seen but of course this only reflects, the important point that it’s only been three months into Mr Ramaphosa’s  Presidency,” the economist told SAnews.

Pienaar said President Ramaphosa, who took helm of the highest office in the land in February, has since assuming office made positive steps in moving the country forward.

“A lot of the things he’s done has been positive and suggest that we may be on a better path going forward. Basically there was nothing that he could have done in that three months to prevent this from happening. That’s how one should see it. Yes, it may put a damper but this number tells us very little if anything, on what to expect going forward in terms of growth.”

Since assuming office, President Ramaphosa has made key changes at the board of power utility Eskom, while also announcing changes at the South African Revenue Service (SARS), among others.

“One needs to give it a number of quarters and perhaps even more than that perhaps before you can cast a verdict in terms of growth with what the President has done,” he said.

Looking to the future

In terms of what may happen in the future, Pienaar said there is likely to be some recovery in manufacturing in the second quarter, while another contraction might be in store for the agricultural sector.

“Trade might recover, although in the second quarter we had a VAT [Value Added Tax] increase, and the petrol price going up. There are other risks like the public sector unions may strike from the middle of June. These are some of the risks to growth but I would expect to see a bit of a bounce back in the second quarter,” said Pienaar.

Pienaar however added that there might be some tough times in store for those hoping to get into employment at the moment given the poor GDP figures.

“To the extent that GDP growth remains poor, that does of course imply that there’s very little scope for employment growth in the economy. So it means that if you are not in the labour market currently, it’s quite unlikely that there’s going to be a lot of opportunities opening up for you anytime soon.”-