Third-quarter expansion of 1,4% falls short of consensus forecast
GROWTH in the economy fell well short of expectations in the third quarter of this year, knocked mainly by a sharp contraction in the mining sector, official figures showed yesterday.
This adds to concern about the effect that a recession in Europe would have on SA, and backs the case for the Reserve Bank to keep interest rates low for the foreseeable future.
The economy expanded by 1,4% compared with the second quarter, when it grew by 1,3% — comparing poorly with consensus forecasts for an increase of 1,8%.
"SA is entering a difficult period, with the euro-zone recession and its growth rate already subpar," Peter Attard Montalto, economist at Nomura International, said yesterday.
Europe is SA’s main trading partner, and purchases most of its manufactured exports.
Mining production shrank 17,4% in the third quarter, largely reflecting a spate of strikes across the industry, Statistics SA said. It was the third successive quarter that the sector had contracted.
Manufacturing output shrank 1,9%, which also detracted from growth but was an improvement from a revised 8,8% fall in the second quarter. Agricultural production fell 4,3%.
The figures are all seasonally adjusted and annualised, which means they are multiplied by four to reflect annual growth trends.
"Clearly the weakened global economic environment, coupled with supply disruptions and an increase in domestic strike activity, has had a negative impact on SA’s economy," Stanlib economist Kevin Lings said. "Unfortunately, the fairly broad-based weakening in global economic activity coupled with higher domestic inflation will act more fully against SA’s growth momentum in the coming quarters."
Many analysts are lowering their growth forecasts for the country next year to reflect the expected effect of the global slowdown, which is most pronounced in developed countries.
During the third quarter the South African economy was supported by growth in the financial services sector, which accelerated to 4,5% in the third quarter from 2,7% in the second.
Retail and wholesale sales also helped drive overall growth, rising to 6,1% from 5,2% in the second quarter, indicating that the economy was being driven by domestic demand, rather than production.
Reserve Bank governor Gill Marcus has already warned about the possibility of "stagflation" for SA — a toxic mixture of slow growth and high inflation. This complicates the Bank’s interest rate decisions.
Compared with the same quarter last year, the economy grew 3,1%, roughly the pace seen since it emerged from its recession in 2009, the Stats SA data showed.
Stats SA officials also pointed out that in the first nine months of this year, output rose 3,2% compared with the same period of last year — a more accurate indication for the annual growth rate.
Joe de Beer, deputy director- general at Stats SA, said it was difficult to predict what would happen in the mining sector as it was so dependent on global demand. But he said a pickup in manufacturing activity in August and September could signal a change in trend for the economy’s second-biggest sector.
"If manufacturing continues its recent trend of improvement it augurs well for growth in the fourth quarter," Mr de Beer said.
Stats SA revised its estimate of last year’s growth slightly higher, to 2,9% from 2,8%. Its estimate for 2009 also improved to a contraction of 1,5% from a fall of 1,7%.