South Africa may be past its growth peak for 2011 in the light of uncertainty about the global economy, nationalisation, and labour legislation, BoE Private Bank said on Tuesday.
“The continuing uncertainty over the health of the global economy, nationalisation and labour legislation has had a negative impact on local conditions,” the BoE’s statement quoted economist Mike Schussler as saying.
“Despite having the lowest interest rates for decades, we are already witnessing a decline in the demand for durable goods and property.”
According to the BoE Private Clients Domestic Overview for June, manufacturing production declined by 3.7%, more than the anticipated decline of 0.6%, while in rand terms, the JSE All Share Index declined by 2%.
Gold mining declined by 9.5% and the media and household goods sectors dropped 5.2%.
The tech, hardware and equipment sector showed gains of 15.4%, while the bond index closed 0.2% higher.
The rand performed well against other currencies gaining 3.2% and 0.1% against the pound and euro respectively.
BoE Private Bank Economist Madalet Sessions said that according to GDP data released in June, government consumption expenditure increased by 9.5% during the first quarter of 2011, while gross fixed capital formation increased by only 3.1% on a seasonally adjusted and annualised rate.
“Expenditure by general government on fixed capital formation during [the first quarter of 2011] declined by a further 0.6% and remains almost 20% below the peak reached in the final quarter of 2008.”
“Government continues to prioritise consumption expenditure at the expense of investment expenditure,” said Sessions.
Consumption expenditure is what the government currently spends on purchases, goods, services, public servants salaries and most national defence and security, according to a World Bank explanation.
Fixed capital formation is what is spent on land improvements, like fixing fences, ditches and drains; machinery and equipment, and the construction of roads, schools, hospitals, buildings.
Sessions said this undermined the growth potential of the economy by “transferring resources from the productive economy to unionised public sector workers”.
In addition, infrastructure backlogs constrained the economy’s ability to provide goods and services at low cost to consumers.
The bank said the proposed Property Rates Amendment Bill which could see second properties taxed differently, currently before Parliament, could also further impact property demand.
The main “drivers” of inflation pressures continued to be rising food and fuel prices, and other high administered costs.
The bank said a premature tightening in monetary policy would “do little” to contain inflation and would further impact negatively on economic growth.
It therefore called on the South African Reserve Bank to maintain interest rates at current levels.
The Monetary Policy Committee would announce its decision on the repo rate (currently 5.5%), which serves as a baseline for bank prime lending interest rates (currently 9%), this Thursday. — Sapa