The Reserve Bank’s bulletin for the fourth quarter of 2011, released on Monday, showed slow and steady growth in the South African economy, but with a potential to do better.
“The picture of the South African economy that emerges from the analysis is slightly more positive than the snapshot taken three months earlier,” said Monde Mnyande, chief economists and advisor to the Reserve Bank governor.
The economy expanded at significantly higher growth rate in the final quarter of 2011 and the gross domestic product grew at an annualised rate of 3.2% in the final quarter, up from 1.7% in the third quarter, as activity in the mining and manufacturing sectors recovered.
“It [a dismal third quarter] had a lot to do with strike activity and other disruptions in the third quarter,” said Johan van den Heever, head of the Reserve Bank’s research department.
“For the year as a whole the growth rate was 3.1%, which is not what this country deserves.”
A lower interest rate environment was supportive of higher household consumption. Increased household consumption has been most helpful in propping up the economy, said van der Heever.
Real household consumption expenditure continued to expand briskly at an annual growth of 5.0%. “After a slight hesitation in the middle quarters of 2011 [3.4% and 3.8%] its pace of increase picked up in the final quarter [to 4.6%] as consumption expenditure continued to track growth in real disposable income,” said the report.
Mnyande noted household debt to income ratio has gradually receded from 82% on 2008 to 74% in 2011.
“Although it is still quite high compared to an average of 60% over the past two decades,” he said.
South Africa’s export volumes have been rising consistently for some time, but from a low base and slowly compared to other economies.
As a result of robust domestic expenditure, imports have increased strongly culminating in a deterioration of the trade balance which switched from surpluses earlier in 2011 to a deficit in the final quarter, the bulletin said.
The balance on current account is 3.3% of GDP for 2011 as a whole, van den Heever said, but for the final quarter there was a narrowing of the deficit to 3.6% as a result of dividend payments lowering from exceptionally high ones in the third quarter.
As the economy continued to expand, aggregate employment trended higher over 2011, while the number of discouraged work-seekers also rose somewhat culminating in a reduced employment rate in the fourth quarter (23.9%), but only slightly down from 25% in the previous quarter.
“Employment levels picked up meaningfully in the first three quarters of 2011, increasing at seasonally adjusted and annual rates of 8.1%, 10.5% and 18.6% respectively,” the bulletin said.
Recent increases in employment could bring firmer prospects of better performance in the housing market, Mnyande said — “jobs tend to come before housing”.
While credit extensions, bank loans and advances have grown since a low negative in 2009. Instalments of credit and unsecured lending have been stronger, said van der Heever. But mortgage advances have been really flat in recent quarters.
Mortgage lending waned further in 2011 and was quite weak in the final quarter of the year — consistent with the subdued conditions in the real estate market. “This was mirrored in the poor performance of house prices in 2011 and early 2012, with the luxury segment of the market most under siege,” the bulletin said.
The average time residential properties remained on the market increased to 17.6 weeks in the final quarter of 2011.
Going forward, Mnyande said the bank is mindful of lags in monetary policy. It expects inflation to remain slightly higher than the target range of 6% this year, but recede back within the range by early next year.
Excluding short-term volatile components, like food and transport costs, rates of inflation are still within the target range with underlying indicators closer to 4.5%, van den Heever said.
Rashad Cassim, a member of the bank’s monetary policy committee, said it is difficult to predict the outcome for the first quarter of 2012. “All indications from the monthly figures show we are not going to see massive increase, but will see slow growth continuing.”