A string of gloomy data has clouded some of the optimism surrounding the South African economy, raising fears of another interest-rate hike and casting doubt on government growth forecasts.
After the release of figures on Tuesday that growth had slowed by 0,2 percentage points to 4,5% in the second quarter of 2007, the main monthly inflation rate hit a new four-year high of 6,5% on Wednesday.
Figures published on Friday then revealed that the annual trade deficit had risen to R9,4-billion, in a trend blamed partly on the rising cost of imports of metals and machinery.
The inflation figure served to reinforce speculation that another interest-rate rise was on the cards, which raised questions about Finance Minister Trevor Manuel’s budget forecast in February of growth rates of more than 5% until the end of the decade.
”On face value, the data suggests that the [Reserve] Bank should hike its key repo rate by half a percentage point to 10,5% at its next policy meeting in October after lifting lending prices by a cumulative three percentage points since June last year,” said an editorial in Business Day newspaper.
”The danger is that further interest-rate increases will stunt the longest expansion in South Africa’s history and without reducing inflation,” the newspaper added.
The slowdown in the second quarter was most evident in the industrial sector, which grew only 0,5%, after rises of 4,75% and 8,25% in the previous quarters. The mining sector, the traditional motor of the South African economy, even registered a 0,5% decline.
Razia Khan, Standard Chartered Bank’s chief of research for Africa, said the figures underline how the government ”must really focus on the supply side” and improve its infrastructure, especially erratic electricity supplies.
South African businesses have had to contend with a series of power cuts amid high demand during the winter months, fuelling criticism of national energy supplier Eskom.
Complaints about the high cost of telecommunications and of internet access also abound.
According to Denis Dykes, director of economic research at South Africa’s Nedbank, ”it’s obvious that there are issues such as transportation or electricity” the government must address for growth to flourish.
Industry and Commerce Minister Mandisi Mpahlwa acknowledged last week that infrastructure problems need tackling, telling a briefing that ”overhauling the public transport network is a vital requirement for inclusive growth”.
The Congress of South African Trade Unions (Cosatu) said the problems confronting industry means there is little chance of lowering the unemployment rate, which unofficial estimates put at about 40%. ”The prospects are gloomy for employment,” said spokesperson Patrick Craven.
Cosatu said the slowdown is a cause for alarm, but it is firmly against another rise in interest rates.
”We have no doubt the stringent, conservative economic and monetary policies of the government and the Reserve Bank are the main reason for these alarming trends, in particular the relentless increases in interest rates which, as Cosatu has repeatedly warned, were bound to lead to a slowdown,” it said.
However, analyst Khan said there is no reason that ”the goal of achieving an annual GDP growth of 6%” in 2010 should be beyond the government, adding that the 4,5% figure still exceeded most forecasts.
”This was still ahead of market expectations, and with year-on-year growth holding up at 5%, it looks like another good year overall for the South African economy,” she said. — Sapa-AFP