SA moving out of a recession, pins growth hopes on agriculture
The sector provided a boost in 2017, but large contractions have dragged down growth
As the release of the latest economic-growth figures looms, close attention will be paid to the agricultural sector for whether it boosts the country’s growth once again.
The figures for the third quarter show that, when the GDP figures are released in early December, SA looks set to have emerged from the recession. While the quarter’s production figures were lower than anticipated, economists are confident it is enough to see some growth – the wild card, as always, is the agricultural sector.
As the country recovers from the drought and faces headwinds from delayed harvests, large contractions in the sector have dragged down growth.
Statistician-general Risenga Maluleke said the decrease in agricultural production “was mainly due to a drop in the production of field crops and horticultural products” predominantly in the Western Cape, which contributes 20% to the sector.
The latest data from Agbiz show that in the third quarter the agricultural sector is likely to have contracted a little, about 8% quarter on quarter, compared with a previously expected expansion.
“This year we won’t end on a strong footing,” forecasts Agbiz agricultural economist Wandile Sihlobo. “The summer harvest crop is not as big as we thought. Maize and sunflowers crops are not performing well. It’s not so much that the sector is performing badly but we’re coming off a very high base in 2017.” While 2019 will probably see stronger growth, the agricultural sector will drag down economic growth, but to a lesser extent, in the second half of 2019, Sihlobo says.
Agricultural production, which showed double-digit contraction in the first half of the year, is not expected to repeat this extent of a drop in production, says Investec chief economist Annabel Bishop.
However, FNB senior agricultural economist Paul Makube says the sector will rebound in the third and fourth quarters of 2018.
“The earlier contractions reflected the negative effects of the drought and they delayed harvests of summer crops. Since then there have been huge amounts of activity in terms of harvesting and production of crops,” Makube says.
Agriculture output plunged by 29.2% in the second quarter of 2018, after a 33.6% contraction in the first quarter, weighing on growth for the second consecutive quarter.
While the agricultural sector only makes up a small part of the economy, at about 2% of GDP, it gave SA a much-needed boost in 2017 with growth increasing more than expected to 1.3%.
Farming remains vital to the economy with 1.28 million people formally employed and about 8.5 million directly or indirectly dependent on the sector.
“The sector should contribute positively to GDP but also help the economy gain some traction. The second half of the year should offset the losses in the first half of the year,” says Makube.
The agriculture sector will make a strong recovery in the fourth quarter of 2018, as the value of animal products contributes positively to the sector, says Absa senior agri-economist specialist Hamlet Hlomendlini.
Without the agricultural sector, second-quarter GDP would have expanded by 0.1% compared with the 0.7% contraction, and the contraction in the first quarter would have been less stark at 1.7% compared with 2.6%.