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The Real Economy Bulletin - First Quarter 2017

Main Bulletin: The Real Economy Bulletin - First Quarter 2017

In this edition:

GDP growth:  South Africa entered a technical recession with a second quarter of contraction in a row. Investment emerges as the primary drag on economy growth, as confirmed by the decrease in mining production and the sectoral slowdown in utilities and construction. While manufacturing returned to growth over the past year, sales were still depressed, showing a slight decline. Read more.

Employment: Employment reportedly climbed 500 000 in the year to the first quarter of 2017, reaching 16.2 million. Business services, manufacturing (primarily wood and paper, and food and beverages) and construction drove the growth on a year-on-year basis. Mining employment stagnated while the metals industry returned to growth. Read more.

Trade: South Africa confirmed its positive trade performance in the first quarter of 2017, running its fourth trade surplus in a row. The further strengthening of the rand over the first three months of the year led to both imports and exports decreasing in rand terms but increasing in dollar terms. Notably, mining exports picked up sharply over the last year. Exports from manufacturing, supported by chemical and metal products, also performed well over the last year. Read more

Investment and profitability: The past year saw an improvement in profitability in the real economy. Nonetheless, total investment decreased sharply in 2016, primarily in the private sector. State investment stagnated largely due to the onset of fiscal consolidation. Read more.

Major new projects: This section summarises major new foreign direct investment (FDI) projects, drawing on a new TIPS database, as well as domestic initiatives in the real economy. Read more

Briefing note: South Africa's credit downgrade - A commodity story: While not negating the role of internal political turmoil, South Africa’s credit rating history seems to provide other important angles of analysis. The country’s credit ratings have been mainly determined by GDP growth, in turn underpinned by global commodity prices. Considering South Africa’s rating in the light of commodity prices, this shows that South Africa’s credit rating has been closely linked to international dynamics. Read the briefing note online: South Africa's credit downgrade - A commodity story.

Briefing note: Industrial policy and the locomotive procurement - corruption undermines industrial development: The procurement by Transnet of 1 064 locomotives was hailed as a boon for industrial policy. Transnet consolidated several years of procurement and sent the market signal that there was sufficient demand in South Africa for a major investment by locomotive producers and their suppliers. It also promised to stimulate local manufacturing firms to become suppliers into this global industry and support an export base in these products. Read the briefing note online: Industrial policy and the locomotive procurement - Corruption undermines industrial development.

Briefing note: The electricity oversupply - Implications for economic policy. Since 2011, Eskom has experienced a sharp decline in demand, while the electricity-intensity of the South African economy fell by a quarter from 2005 to 2017. A TIPS briefing note (available at Responses to the electricity oversupply) analyses the factors behind the fall in demand and, on that basis, a range of strategic responses. Read the briefing note online: The electricity oversupply - Implications for economic policy.

Briefing note: What's going on with the employment data? The Quarterly Labour Force Survey reported a strong increase in formal non-agricultural employment in the first quarter for the first time since the survey was initiated nine years ago. Informal employment accounts for around 17% of all jobs and is more volatile. The survey found that, on average, informal employment declined by 2,2% in the first quarter of the year, each year from 2010 to 2016. For the first quarter of 2017, in contrast, it reported that informal employment dropped just 0,5%. If the economy were booming, this kind of jobs growth would not be exceptional. GDP growth has slowed, so the findings appear anomalous. Read the briefing note online: What's going on with the employment data?