Comment on GDP decline by Cees Bruggemans of FNB

South GDP plunged during 4Q2008 by -1,8% annualised. If we exclude agriculture, the decline was -2,2% annualised.

With GDP growth for 3Q2008 (for now) unrevised at +0,2%, this suggests the present recession started in October 2008.

The weakness was not uniform throughout the economy. Indeed, we are seeing a bit of a split personality.

Manufacturing, with a 16% share of GDP, plunged by -22% annualised during 4Q2008, with most of this weakness directly linked to the export sectors and domestic motor manufacturing, as highlighted last month on reviewing the manufacturing data for 4Q2008.

In sharp contrast, agriculture posted a +17% annualised gain due to favourable farming conditions and prices. Construction came in strongly with 11% annualied growth, anchored in the massive infrastructure effort.

These two outperforming sectors together account for nearly 6% of GDP.

The remaining 80% of the economy basically split into equally sized groups.

The one group, including government, financial, business, real estate and personal services, delivered modest average growth of +3,5% annualised.

The other group, including transport, communication, mining, wholesale, retail, hotel and motor trades, and electricity generation, averaged a disappointing +1% annualised growth.

The weakest sectors in the economy in late 2008 were manufacturing (-22% annualised decline), electricity generation (-2,7%), the various trades (-0,2%) and mining (+0,4%), together contributing nearly 40% of GDP.

Good news was that both the consumer (trades) and mining didn’t perform all that dismally during 4Q2008. One wonders, however, how global events will hit mining in 1H2009 (badly?), whether agriculture is unlikely to outperform 2008 (indeed show a small output decline in 2009?), whether manufacturing can ease its pace of decline in 1H2009 (as inventory corrections end), and whither the various consumer trades (as the consumer gets favoured by lower interest rates and more public spending, but gets hit by paired income gains and employment losses).

With 1Q2009 and 2Q2009 expected to still show annualied GDP declines, though with changing composition as alluded, the multiple quarterly GDP declines and accompanying employment losses are likely to make this period officially a recession, but only once full datasets have been compiled later this year, with revisions still likely in coming years.
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