Economic growth pleasantly surprised the market on Tuesday with an increase of 2.1%, which will afford Finance Minister Pravin Gordhan just a little bit more wiggling room when it comes to his Budget to be announced on Wednesday. However, analysts have warned tough times are still ahead.
Real gross domestic product (GDP) increased 2.1% in the fourth quarter of 2012, compared to growth of 1.2% in the third quarter, Statistics South Africa (Stats SA) reported on Tuesday.
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This resulted in the economy recording only moderate growth of 2.5% in 2012 as a whole, down from 3.5% in 2011 – although this had been widely expected. The growth helped nominal GDP to reach an estimated R3-trillion for the year 2012 – R238-billion more than in 2011.
The largest contributions to the quarter-on-quarter growth were: the manufacturing industry; finance, real estate, business services and general government services.
Stats SA said growth was negatively affected by poor growth in the mining and quarrying industry reflected of negative 9.3% due to lower production in gold and other metal ores' mining, including platinum, as lag effects of wildcat strikes in the sector were felt as some such strikes continued well into the final quarter of the year.
Negative growth of 2.2% in the electricity, gas and water industry – due to lower consumption in electricity and water – also had an effect on GDP.
Strained industries
In a press release, Nedbank’s economic unit said the growth had beat market expectations of around 1.6 % growth. Investec said it was 1.7%.
While the firmer growth is a pleasant development, Nedbank warned 2013 would be much the same as real GDP is forecast to grow by a moderate 2.6% this year.
“The pace of economic activity remains modest and unbalanced,” Nedbank said.
“Although domestic spending moderated, it continued to outpace production, despite improvements in agriculture and manufacturing output. This suggests that the underlying pressure on the current account and the rand is unlikely to ease in the near future.”
Nedbank said it expected the strain on the mining and manufacturing sectors will probably continue.
“Producers and exporters face another difficult year as the recession in the eurozone is forecast to continue and local operating conditions are expected to remain challenging given high electricity costs, strained labour relations, fading productivity and inadequate economic infrastructure.”
It said these constraints are expected to offset most of the benefits of a weaker rand.
Tight budgets
Investec’s chief economist, Annabel Bishop, said the weakness of the economy in 2012 makes it unsurprising that jobs were shed and warned the government needed to make the right moves to encourage growth.
“Indeed, 2013 is not expected to see economic growth running above potential and clearly the Budget this week would not be the right time to raise taxes, particularly taxes impacting the corporate sector,” Bishop said in a press release.
She also warned no more than budgeted should be spent on social services (already 57% of government expenditure) and civil servants wages, a major part of social services spend, but rather cut out wastage, inefficiency and corruption and improve service delivery.
Nedbank and Investec said the GDP figures, along with other factors, should still encourage the Reserve Bank to leave inflation rates unchanged.