The 2002 rate hikes were not solely or even mostly to blame for the slowdown in South Africa’s economic growth rate, South African Reserve Bank (SARB) chief economist Ernie van der Merwe told a media briefing on Tuesday.
Gross domestic expenditure accelerated to a four and half percent growth rate in the first half 2003 from four percent last year and only two and half percent in 2001.
“The major reason for the slowdown was the external sector, as domestic demand remained robust and in fact accelerated to a four and a half percent growth rate in the first half of this year when interest rates were at their peak. In so far as high interest rates contributed to a strong rand, one may say that the rate hikes were responsible for the slowdown. But the far more important reason is the slowdown in the global economy due to the Iraqi war and Severe Acute Respiratory Syndrome (Sars),” van der Merwe said.
Recessions, that is two consecutive quarters of contraction in economic activity, were recorded in several Asian and European countries in the first half of this year. Amongst the countries involved are Germany, Italy, the Netherlands, Singapore and South Korea.
The South African economy by contrast is in the midst of its longest upward phase.
The current phase started in September 1999 and in May this year beat the previous record upward phase from September 1961 to April 1965. The SARB said in its Annual Economic Report released on Tuesday that gross domestic product growth had eased to one and half percent in the first half of 2003 compared with three percent in the second half of 2002.
This slowdown was despite the mildest rate tightening cycle of the past twenty years. This mildness is measured by the move from the bottom to the top of the interest rate cycle.
In 2002 the SARB increased interest rates by only 400 basis points compared with 1100 basis points in the June 1983 to May 1985 episode, 850 basis points in the January 1988 to April 1991 episode, 500 basis points in the September 1994 to October 1997 episode and 725 basis points in the June 1998 to October 1998 period.
On June 12 2003, the SARB’s Monetary Policy Committee (MPC) caught the market by surprise when it cut the repo rate by 150 basis points, as the consensus forecast was for a 100 basis points cut.
In response to the rate cut and the expectation of further rate cuts, retailers have restocked inventories.
Real wholesale trade sales in South Africa surged by 7,6% y/y in June 2003 as sales rose by 1,9% m/m. This compares with a mild 0,2% q/q increase and 3,0% y/y rise in the second quarter of 2003. – I-Net Bridge