How low can you go?

2013-12-01 14:01

SA’s growth rate drops to an alarming 1.9%, writes Dewald van Rensburg

After a steady stream of downward revisions in recent months, it turns out that South Africa’s growth prospects in 2013 and subsequent years might be even worse than expected.

South Africa’s economic growth rate dropped to 0.7% in the third quarter compared with 3.2% in the second, Stats SA revealed this week.

It was the lowest quarterly growth rate since the end of the recession in 2009.

This is a symbolic marker, but it is also a practical blow after even pessimistic economists had expected better.

This leaves the year’s growth up to, and including September, at 1.9%, with few economists still hopeful for a full-year figure higher than that.

In the course of the year, the Reserve Bank has lowered its forecast for economic growth in 2013 from 2.7% down to the 1.9%.

This week, Business Unity SA went one further, predicting total growth of 1.8% for the year as a whole, the same as in the first nine months.

The Bureau for Economic Research (BER) is forecasting the same, as is Nedbank.

But the BER noted this week that this is “of course in essence the same thing as 2%. The more important thing is whether the weakness spills over into 2014.”

The Reserve Bank’s longer-term forecasts have also been dropping.

It now expects 3% growth in 2014 instead of the 3.3% it predicted in September, it said in its Monetary Policy Review this week.

Even 3% is a “tall order”, says Arthur Kamp of Sanlam Investments, echoing the mostly negative sentiment of economists.

No one expected great GDP growth considering that the vehicle manufacturing sector in effect closed shop in September due to the Numsa wage strike.

However, the growth underwhelmed even the pessimistic consensus prediction of about 1%, said the BER this week.

If it was only the Numsa strike that was to blame, there would be a strong prospect of better growth in the last three months of the year.

The problem is far wider than the strikes which caused the sharp, temporary drops in production.

The overall growth rate was unsurprisingly dragged down by a 6.6% drop in manufacturing output compared with the second quarter.

The sudden halt of vehicle production cannot account for the decline as vehicle manufacturing constitutes only 8% of manufacturing.

Standard Bank analysts Shireen Darmalingam and Nomvuyo Guma say the mining and manufacturing sectors are playing a “seeming game of tag”.

The two sectors are interlinked with a good quarter in mining generally leading to a good quarter in manufacturing and vice versa.

Judging by mining’s passable performance in the quarter, there should be some recovery in manufacturing before the end of the year, they add.

FNB’s John Loos says the slow growth is not an “isolated incident”.

It is the next point in a trend that began at the end of 2011 when growth reach a post-crisis high of 3.7%.

The huge and diverse “tertiary sector” that makes up two-thirds of the economy as opposed to manufacturing’s 15% is also slowing down.

Growth in this agglomeration of the wholesale, retail and financial sectors slowed from 2.2% to 1.3%.

This shows that consumers are struggling to keep up the demand side of the economy.

Loos says that on the one hand, wage growth is stalling.

The national wage bill, a product of employment and wage levels, is growing at a slower rate.

In the third quarter, this rate was 8.7% compared with 9.8% in the previous quarter and 13.6% in early 2010.

At the same time, the growth in credit extension is also signs of slowing down.

Deficit games

South Africa’s worsening trade balance is another worry this year. It contributed to the rand’s depreciation and the inflation that it stokes.

In October, imports exceeded exports by R12.4?billion, the SA Revenue Service (Sars) announced on Friday.

This was slightly worse than September even though the Numsa motor industry strike had decimated vehicle exports in September.

In September, the country’s exports of vehicles plummeted by R4.4?billion. In October, it recovered by R3?billion.

For the year up to, and including October, the trade deficit totalled R76?billion compared with R38.6?billion in the same period in 2012, almost double the amount last year.

Sars compiled the trade statistics for October using its new methodology that includes trade with Botswana, Lesotho, Namibia and Swaziland (BLNS).

These used to be excluded for historical reasons.

The trade with these neighbouring countries is overwhelmingly in South Africa’s favour and the new method has dramatically reduced the official deficit.

In October, the trade balance with the BLNS countries was at a surplus of R8.57?billion.

Under the old method, the October trade deficit would have been R21?billion and altogether, R146.6?billion for the year to date.

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