Poor growth leaves little to celebrate
30 Nov 2012 00:00 | Lynley Donnelly
The country's disappointing economic growth numbers this week were worse than even pessimistic market expectations. Although the country is not returning to recessionary times, the economy is clearly under strain, according to economists.
Gross domestic product (GDP)grew by a mere 1.2% quarter on quarter and seasonally adjusted. The market forecast was 1.5%. The impact of strikes hit the mining sector hard, with growth shrinking by 12.7%, following growth in the second quarter of 30.9%.
Reserve Bank Governor Gill Marcus called the worrying growth figures "self inflicted", given the violent, protracted nature of the strikes that have bloomed across the country, Business Day reported.
The impact of labour unrest, some of which continued into October, is expected to carry through into the fourth-quarter figures.
"It's unlikely that mining will have a major bounce back and there are knock-on effects for manufacturing and other services," said Mike Schussler, chief economist at economists.co.za.
Kevin Lings, economist at Stanlib, said another perhaps more worrying aspect of the growth numbers was the loss in momentum in most other sectors of the economy. That was partly in response to the generally weak global economy hampering local exports, as well as signs that consumer spending was declining.
Other sectors that saw subdued growth included transport, which grew by 1.1% in the third quarter, down from a 2.2% growth in the second quarter. The sector was also beset by industrial action.
Slower quarter-on-quarter growth was also seen in manufacturing, which was only 1.2%; electricity, gas and water was 1.6%; and finance, real estate and business services was 1.8%. The wholesale, retail, motor, catering and accommodation sector grew at 1.7%, although second quarter growth was 2.7%.
The country had seen positive growth for 13 consecutive quarters since the recession but, according to the most recent GDP data, growth was at its lowest during the period, Lings said.
The economic recovery was propped up by consumer spending and, although incomes had continued to grow, they were being squeezed by inflation.
"Consumers are beginning to lose steam," he said. As a result, consumers had taken on more credit, which had contributed to an increase in unsecured lending.
Looking ahead to the fourth quarter and the all-important festive season, Lings said shoppers were likely to rely on credit.
The country ultimately needed more diverse sources of growth, he said.
Improvements in construction and fixed investment could be an option, particularly when the government's programme to build infrastructure began to take off. An uptick in the local housing market could be another option, because the country was enjoying its lowest interest rate since 1974, Lings said. But the country urgently needed to achieve a more balanced growth in 2013-2014.
According to a research report by Nicky Weimar and Dennis Dykes, both Nedbank economists, the declines in categories such as wholesale and retail, which form part of the tertiary sector of the economy, suggested that household confidence was fading. It probably reflected "the strain of higher prices on essential goods, softer growth in disposable income and fears of tougher times ahead given the relatively difficult global and domestic environment", the report stated.
The GDP figures revealed that the economy's sources of momentum were too narrow and "increasingly unsustainable". Production and exports are faltering, while spending and imports continue to increase.
"These imbalances are visible in a bulging trade deficit and a widening current account deficit, which is starting to weigh on the rand. If the current pressure on the rand is sustained, the outcome will be higher inflation in 2013 and beyond," the report stated.
The gloomy outlook was re-inforced by ratings agency Standard & Poor's (S&P). In an industry report last week, it said that the outlook for South African companies was far from benign. Thanks to spillover effects from the "uncertain domestic and global macroeconomic environment", as well as the "political, economic and social implications" of widespread strikes, local corporates had seen market conditions deteriorate during 2012, it said.
As a result, the outlook for the companies that S&P rated remained negative overall, particularly in light of the downgrade of the country's sovereign rating. Corporates that S&P rates include the Edcon Group, Anglo American, AngloGold Ashanti, Sasol and Telkom. It also rates government-related entities such as Eskom, Transnet and Rand Water.
Global economic conditions
S&P warned of potential downgrades still to come. "We consider that further downgrades could occur due to the tough operating environment that South African corporates face going into 2013," the agency said. "Any rating actions will also likely depend on wider economic and political developments in the country."
The economic prospects for the country were hampered by global economic conditions, particularly those in Europe, which remained one of South Africa's key trading partners.
The agency expected that most European economies would move further into recession, with core countries in the eurozone, such as Germany, increasingly being affected.
Moderating growth in large Asian economies was also expected to dampen demand for exports to this part of the world, although a weaker rand had helped to counter this, it said.
"We consider that a weaker business and investment climate in South Africa may drag on economic growth, while social pressures could have implications for shaping the medium-term political, economic and fiscal landscape in the country."
It forecast GDP growth at no more than 2.5% in 2012 and predicted that the current account deficit would increase to at least 5.1% of GDP.
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