As unprotected strikes continue to spread across South Africa, the effect on domestic growth for the third quarter will be adverse and also affect output in 2013.
Real gross domestic product (GDP) rose by an annualised rate of 2.7% during the third quarter and 3.2% in the second. But, depending on the duration and spread of the strikes, economists say it could slow down to anywhere between 2% and 2.5%.
Unrest in the mining sector notably affected growth in the previous two quarters, causing fluctuations.
During the first quarter, an illegal strike at Impala Platinum caused growth in the sector to drop to minus 16.8%. Its recovery in the second quarter saw it bounce back to 31.2%, significantly boosting GDP.
It is almost certain that the ongoing strikes will likely have an even worse effect on GDP this time round.
Two weeks ago, South African Reserve Bank governor Gill Marcus said the bank's forecast had been revised down to 2.6% in 2012 and 3.4% in 2013, compared with previous forecasts of 2.7% and 3.8%.
Bad numbers
But Absa Capital's quarterly perspectives, released on October 2, predicted growth in the third quarter to be 2.5%, revised down from 2.6%.
"No one can really predict it, but this is based on what we've seen until now," said Absa Capital economist Ilke van Zyl.
Cees Bruggemans, chief economist at First National Bank, said the figure for the year could be "anywhere between 2% and 2.5%".
Nedbank economist Dennis Dykes said: "We would have to have spectacularly bad numbers to get below 2.2%. The first half of the year is in the bag – the bigger problem is what it is going to be next year."
Uncertainty in the local economy is already visible. "A lot of aspects of South Africa are not coping as well with the slowdown as we thought," said Mike Schüssler, economist and director at economists.co.za.
Vehicle sales, for example, had thrived in previous quarters, but the latest statistics show growth of only 1.4% compared with 9.4% in August and 19.3% in July.
Industrial action
The National Association of Automobile Manufacturers of South Africa said the events at Marikana and high levels of industrial action in various sectors had dented business confidence in South Africa.
A downgrade by ratings agency Moody's last week has been a wake-up call in terms of the problems in South Africa. The agency downgraded the rating of the South African RSA government bonds to Baa1 from A3 with a negative outlook, the same rating awarded by Standard & Poor's.
The reasons included diminishing government institutional strength, reduced fiscal space, a negative investment climate in light of infrastructure shortfalls, relatively high labour costs despite high unemployment, socioeconomic stresses and increased concerns about future political stability.
The treasury said the government remained committed to the objectives stated in the 2012 budget, including investment in infrastructure – a R1-trillion plan.
This week, Moody's also downgraded the long-term ratings of 13 South African sub-sovereign issuers, including 12 local governments and one government-related issuer, and changed the rating outlook to negative from stable on another seven local governments in the country.
All sub-sovereign ratings in the country now carry negative outlooks.
It downgraded the senior unsecured bond rating of Eskom by one notch – to Baa3 from Baa2 – and did the same for Telkom's global-scale issuer rating.
Unsecured rating
It also changed the outlook on Gold Fields' Baa3 global-scale issuer ratings and Gold Fields Orogen's Baa3 senior unsecured rating from positive to stable.
The downgraded rating will presumably increase borrowing costs. However, at a business event on October 2, Marcus said many entities had already arranged financing and would be affected only at a later stage.
The 10-year government bond yield remains at a record low. The yield on South Africa's 2021 bonds fell to record lows of 6.5% in July and was at a similar level this week. This is because the downgrade has coincided with South Africa's inclusion in the Citigroup World Government Bond Index on October1.
The index is tracked by funds and assets worth more than $2-trillion and South Africa is the first African nation to be included. However, if further downgrades take place, the country could be excluded from the index.
"If you slip out of investment grade – Standard and Poor's rating BBB would be the critical level – a lot of the big pension funds in the United States have to pull out.
"Anything below that means they are basically junk bonds," Dykes said.