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GDP data confirms SA’s economy is under strain

South Africa’s real gross domestic product (GDP) at market prices on a quarter-on-quarter (q/q) seasonally adjusted annualised (saa) basis dropped by -1,8% in the fourth quarter of 2008 from +0,2% in the third quarter, Statistics South Africa (Stats SA) said on Tuesday.

Non-seasonally adjusted year-on-year GDP in the fourth quarter was placed at 1,0% from a revised 3,0% (2,9%).

Non-seasonally adjusted year-on-year GDP in the fourth quarter, excluding agriculture, was placed at 0,8% from 2,7% in the third quarter.

Growth was expected to have decreased by 1,3% on a quarter-on-quarter saa basis according to a consensus survey undertaken by I-Net Bridge.

The range of forecasts was heavily weighted in the negative, ranging from -2,7% q/q to +0,2% q/q, with only one respondent seeing it positive and one seeing it at 0,0% q/q saa growth.

For the year, real annual GDP rose 3,1% from 5,1% in 2007.

The GDP estimates are preliminary and may routinely be revised.

The third quarter GDP was the 40th consecutive quarter of positive growth since 1998, although the impact of rate increases since June 2006 had brought the pace of growth down. Today’s decline is thus the first decline in a decade.

The data will help participants in both the fixed income and equity markets to determine the future direction of interest rates and the pace of companies’ earnings growth.

Mike Schussler, an economist at T-Sec, said: “An interest rate cut is likely, but the lower inflation data expected tomorrow will certainly open the door for interest rate cuts.

“We have been hit by the global situation and anyone who thinks we are not in a recession is wrong. We are in one now.”

Fanie Joubert, an economist at Efficient Group, said: “The annual figure is in line with what we expected, but the quarterly figure is worse than expected.

“It confirms that the economy is under strain. We will have to see what the next quarter’s figure will be. If it is negative again, it will mean that we are in a technical recession.”

A snap poll of nine economists by I-Net Bridge on Thursday showed that six of the nine expected an emergency Monetary Policy Committee (MPC) meeting prior to the scheduled April meeting, with the consensus cut being 100 basis points.

Tony Twine, an economist at Econometrix, said on Tuesday: “I think [the data] will accelerate a relatively rapid interest rate cut — probably before the April meeting [of the MPC].

“It is not good news for the forex markets and it is unlikely to impress several of the boards on the stock exchange.”

The main contributors to the decrease in economic activity for the fourth quarter of 2008 were manufacturing (-3,5 percentage points), electricity, gas and water (-0,1 percentage points), wholesale and retail trade, hotels and restaurants and the mining and quarrying industry (0,0 percentage points).

These were counteracted by increases in finance, real estate and business services and general government (+0,6 percentage points), agriculture, forestry and fishing (0,5 percentage points), construction (0,4 percentage points) and transport storage and communications and personal services (0,2 percentage points).

The seasonally adjusted real annualised value added by the non-agricultural industries (excluding the impact of the volatile agriculture industry) decreased by 2,3% from a revised -0,5% (-0,1%).

Full-year GDP in 2006 was 5,3% from the 5,0% year-on-year reported in 2005, which was the fastest pace of growth since 1984. It then reached 5,1% in 2007.

The revised level of GDP at current prices for 2005 is estimated at R1,544-billion, which is R3-billion higher than the previous estimate.

The estimate for 2006 is R1,745-billion, revised up by R4-billion. The independent annual estimate for 2007 is revised by 0,1% to R1,999-billion. — I-Net Bridge

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