Expenditure growth slows in second quarter

The pace of spending in South Africa’s economy slowed sharply in the second quarter—partly as household consumption eased—but investment was starting to pick up, the Reserve Bank said on Tuesday.

In its September bulletin, the bank said gross domestic expenditures slowed to 1.3% from a downwardly revised 7.9% as household consumption growth dropped to 3.8% after a 5.2% rise in the first quarter.

Household expenditure is a key economic growth engine and it slowed as inflation picked up the second quarter—hitting 5.3% in July—while wage settlements moderated.

Reserve Bank chief economist and adviser to the governor Monde Mnyande said the loss of economic growth momentum was regrettable given the country’s high unemployment rate.

“On a net basis, very few jobs were created during the quarter, and the unemployment rate had increased further. The latest short-term indicators for these sectors seem to suggest that the third quarter of the year was not off to a good start.”

Job creation
Even the rise in gross capital formation—which represents investment spending—to 4.1% was off a low base.

With more than a quarter of its labour force unemployed after more than a million have lost jobs since 2009’s recession, job creation is at the top of the government’s agenda.

The government has asked the Reserve Bank to consider economic growth and job creation when it deliberates monetary policy.

This year, the bank has left the repo rate unchanged at 5.5%, after reducing it by 650 basis points in the two years to the end of 2010.

Partly due to a sharp slowdown in the pace of growth to 1.3% in the second quarter, the bank is expected to leave rates low for longer. The market has even priced in a more than 50% chance of a rate cut early next year.

Current account wider
The bank also said the deficit on the current account widened to 3.3% of GDP in the second quarter, mainly as imports rose more than exports.

The rise in the current account deficit was less than the 3.5% forecast in a Reuters poll last week.

Export volumes increased by 3.7% while there was a 10.1% jump in oil imports and a 3.3% rise in non-oil imports, mainly machinery and equipment.

Mnyande said the “balance of payments situation remains one of fairly moderate current account deficits financed comfortably by capital inflows on the financial account”.

Net capital inflows on the financial account of the balance of payments—including unrecorded transactions - were smaller at R23.7-billion in the second quarter compared with inflows of R55.1-billion in the first quarter.—Reuters

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