FNB: Q3 GDP and Wage Bill Growth Statistics

On a more volatile quarter-on-quarter basis, GDP growth returned to positive territory to steer us marginally clear of recession. But the broad year-on-year slowing growth trend is still intact, and wage bill growth may have to be trimmed.

3rd Quarter GDP (Gross Domestic Product) numbers were released today, and much depends on how one wants to view them.

Some will see it in a positive light that a technical recession was narrowly averted, a technical recession being two consecutive quarters of negative growth.

On a quarter-on-quarter seasonally-adjusted and annualized basis, real GDP growth returned to slightly positive territory to the tune of +0.7%, from a previous quarter’s -1.3%.

But if one views the more smooth moving year-on-year rate of growth, the broad multi-year growth slowdown since 2012 remains in place. From 1.3% year-on-year in the 2nd quarter, the rate slowed further to 1% in the 3rd quarter. This is the slowest year-on-year growth since the final quarter of 2009.

The “weak links” in terms of industries were Agriculture Gross Value Added, with a year-on-year decline of -16.2% (-16.2% quarter-on-quarter annualized), as drought impact takes its toll, and Electricity and water, with a year-on-year decline of -2.7% (-8% on a quarter-on-quarter annualized basis).

Mining remains in positive year-on-year growth at 1.4% in the 3rd quarter, but this represents a sharp slowdown from 5.1% previous, and the sector is already at -9.8% decline in quarter-on-quarter annualized terms.

The only key sector still growing solidly in the 3rd quarter was that of Finance, Real Estate and Business Services, whose year-on-year rate was 3.1% (2.8% quarter-on-quarter annualized).

The slowing year-on-year GDP growth rate comes as little surprise, as we have seen both our own FNB Estate Agent Survey Residential Activity rating, as well as the SARB and OECD Leading Business Cycle Indicators, pointing the way weaker on a year-on-year basis.


It is believed that the likely impact on the Residential Property and Mortgage Markets will be negative, and that slowing growth in these sectors is likely in the near term.

The slowing in the Domestic wage Bill growth rate accompanying the multi-year GDP growth slowdown has been seen, which contains the purchasing power growth in the Housing Market.

From a peak of 12.8% year-on-year growth in the Compensation of Employees back in the 2nd quarter of 2010, this rate has slowed to 7.9% by the 3rd quarter of 2015. It has arguably been kept at a still significant level by wage settlements that have been considerably above inflation, and by labour thus being able to increase its share of the take home GDP pie.

What we have seen, therefore, is a steady rise in the Total Wage Bill/GDP ratio, from a low of 46.34% back in the 3rd quarter of 2006 to 52.23% by the 3rd quarter of 2015. As this Wage Bill/GDP ratio rises, crowding out a portion of the economy’s Gross Operating Surplus, so the pressure on the economy to shed jobs, in order to contain this wage bill, rises.

The negative impact of ongoing weakness in GDP growth on Household Spending could thus be felt in 2 ways.

Firstly, it is likely that Real growth in Disposable Income will continue to broadly slow, as wage bill growth slows further in the near term. Secondly, the likelihood of increased job loss, and a lack of new job creation, is likely to dampen consumer confidence. The response should be for the Household Sector to begin to spend more conservatively relative to income, and thus raise its savings rate, as it started to do briefly when the environment became tough around 2008/9.

An increased savings rate, although long overdue, is nevertheless a short term negative for those sectors depending on Household Sector Spending growth.

Read more here: GDP_and_wage_Bill_Q3_2015_24_Nov_2015.docx