SA narrowly avoids recession
South Africa has narrowly averted a recession with economic growth clocking in at 0.6% in the second quarter of the year, despite prolonged strikes in the mining sector, which ran from mid-January to mid-June.
The anticipated gross domestic product (GDP) figures were released by Statistics South Africa (Stats SA) on Tuesday and satisfied market expectations that South Africa would miss a technical recession – defined by two consecutive quarters of negative growth – but only just.
“Real gross domestic product at market prices increased by 0.6% quarter on quarter, seasonally adjusted and annualised,” the statistics agency reported. This followed a 0.6% contraction in the first quarter of the year – the first time South Africa had experienced negative growth since 2009.
As expected, mining served to drastically drag economic growth down.
“Economic activity in the mining and quarrying industry reflected negative growth of 9.4%, due to lower production in the mining of gold and the mining of other metal ores [including platinum],” the report said. And the manufacturing industry also reflected negative growth of 2.1%, due to lower production in food, beverages and tobacco; petroleum, chemical products, rubber and plastic products; motor vehicles, parts and accessories and other transport; and glass and non-metallic mineral products.
The marginal growth was driven by general government services and the transport, storage and communication industry, which each contributed 0.4 of a percentage point. Growth was largely owed to increased activities in the land transport, air transport and transport support services. Finance, real estate and business services contributed 0.3 of a percentage point as a result of increases in banking activities, Stats SA said.
In a note, Investec chief economist Annabel Bishop said: “On a year-on-year basis the economy saw weak growth of 1% in the second quarter of 2014 and 1.3% year on year in the first half of 2014, which does not bode well for 2014.”
Economic growth has continued to deteriorate and Finance Minister Nhlanhla Nene told press agency Bloomberg on Monday that he expected economic growth to reach just 1.8% for the year.
Bishop however said GDP growth is at risk of approaching the 1% year-on-year mark this year after recording 1.9% year-on-year in 2013. “Strike action and reduced supply of electricity have slowed production, while real household consumption expenditure growth has deteriorated on weakened financial health, waning demand and flagging manufacturing production,” she said.
The nominal GDP at market prices during the second quarter of 2014 was R891-billion – R17-billion more than in the first quarter of 2014, the report said.
The most notable performances were: agriculture, forestry and fishing which expanded by R19-billion to R34-billion; general government services which expanded by R6-billion to R140-billion; and electricity, gas and water which expanded by R5-billion to R27-billion.
The largest industries, as measured by their nominal value added in the second quarter of 2014, were: finance, real estate and business services at 21.2%; general government services at 17.2%; wholesale, retail and motor trade; catering and accommodation industry at 16.1%; and manufacturing at 11.1%.
“Despite the worrying downward trend in economic growth, the South African Reserve Bank has clearly communicated its intention to hike interest rates further in the current cycle ... which will slow economic growth somewhat,” Bishop said.
“We forecast no further hikes in interest rates this year as CPI [consumer price index] inflation falls back below the 3 to 6% inflation target before the end of the year. Furthermore, inflation is likely to be within target in 2015. The path of global monetary policy normalisation remains sedate and no interest rate hike is required in South Africa in 2014 from this source.”
Bishop also noted that the Reserve Bank’s leading indicator for June ticked up marginally, by 0.2% year on year, which implies a slightly better performance in the third and fourth quarters compared to the first half of the year – although it is only one month’s reading and cannot be fully relied on as a predictor, she said.