The South African economy grew by 4,6% more in the first quarter of this year than the last quarter of 2009. This surprised almost every single economist and market guru.
Andre Roux of Investec Asset Management points out that the overall level of GDP is now within a whisker of the high point reached in September 2008, which would have seemed a very unlikely outcome this time last year.
Roux says most analysts are likely to be revising their forecast numbers upwards and an overall growth number of 3,5% for the year now seems like a realistic rather than an optimistic expectation.
However Standard Chartered economist Razia Khan is not advising us to break out the champagne just yet. The biggest driver behind these growth figures was mining which increased by 15,4%. This is good news for mineworkers but what it tells us is that we are still very dependent on the global recovery and the global recovery is looking very shaky.
The manufacturing sector also had a strong showing up 8,4% but this was mostly due to restocking and export demand. Khan argues that our mining industry remains encumbered by structural factors like rising costs in both labour and electricity as well as the strength of the rand. Khan argues that a strong rand will be especially problematic for manufacturing ‘as the global recovery momentum currently driving this data eventually fizzles out”.
Khan makes the critical point that while the domestic economy provided a respectable enough performance, we need spectacular performance if we ever have a hope of putting a dent in the rate of unemployment in South African and the extent of job losses the economy has faced.
Locally agriculture grew 3%, construction grew by 2,1% and retail was up 3,3%. Khan says the absolute key for the South African economy going forward is whether domestic economic momentum can pick up meaningfully.
While there will be some froth around the World Cup, South Africa’s recovery would grind to a halt if there was no significant pick-up in the local economy.
But perhaps there is still something to celebrate. Although at this stage of the economic cycle, one would expect to see strong growth rates, Khan says in the past 15 years, South Africa’s recovery has always weaker than the recovery in the rest of the world, but this time we are in the leading pack which perhaps bodes well for the future.
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