Economy – outlook for 2015 dismal, despite boost

The South African economy grew by 1.4% in the third quarter and the country may still meet its growth forecast of 1.4% for the year – but the outlook for 2015, though better than 2014, is not encouraging.

The economy experienced negative 0.6% growth in the first quarter and positive growth of 0.5% in the second.

The figure of 1.4% growth for the third quarter, released by Statistics South Africa on Tuesday, was largely owed to increased economic activity in finance, real estate, business services and the wholesale, retail and motor trade. 

There was also growth in the catering and accommodation sectors (each contributing 0.5 of a percentage point), general government services (0.3 of a percentage point), agriculture, forestry, fishing and the transport, storage and communication industries (each contributing 0.2 of a percentage point).

The manufacturing industry made a negative contribution, shaving 0.4 of a percentage point off the total.

The 1.4% growth was slightly lower than the market’s expectation of 1.5%.

Constraints on growth
Chris Hart, chief strategist at Investment Solutions, said he was concerned that growth in the fourth quarter of the year would be constrained by load-shedding. “[But]of course people shut down [over the festive season] so there will be a seasonal adjustment.”

Hart said that, “when you look at South Africa positioned against other emerging markets, it is one of the few that has seen unemployment going up. Growth is battling, while most others are seeing it rebound, and debt to GDP levels are back to what they were in 2008. We did it to ourselves.”

The big question, he said, is what will drive growth next year, noting that households remain over-indebted, as does government? “There is not much going for us … growth drivers are weak and inflation drivers are strong. It’s very possible growth is not going to reach 2% next year.”

Nedbank’s economic unit said that, “while it is probably fair to conclude that the worst of the disruptions to the economy are over, the risks to the economic outlook remain on the downside given limited power and other economic capacity, and the continued threat of industrial action”.

The unit added that, “provided there are no further lengthy strikes or major disruptions to power supply, the recovery is expected to gain moderate momentum in the final quarter of this year”.

Nedbank said the outlook for 2015 is rosier, “with the economy forecast to expand at a moderate pace of around 2.6% as production in mining and manufacturing returns to normal, and consumer confidence gradually improves off a low base”.

Domestic turmoil
In February, the treasury forecast growth for the 2014-2015 financial year at 2.7% but it has since halved its forecast to 1.4%. The International Monetary Fund also expects that level of growth for 2014, having revised its forecast downward in October.

Globally, growth figures have been divergent, with notable recovery in the United States, which recently ended its $3.5-trillion bond-buying programme known as quantitative easing, and it may raise interest rates as soon as next year.

But not all of the developed world is doing as well. The eurozone is in danger of its third recession since the 2008 crisis, and last week Japan officially fell into recession.

South Africa has blamed global economic turmoil, in part, for its own lack of growth, but every quarter of 2014 has been affected by domestic issues, which have served to slow growth.

The first quarter was notably marred by the months-long strike on the platinum mines, which resulted in negative growth of 0.6%. The unrest briefly stretched into the second quarter, which yielded positive growth of just 0.6%. 

In the third quarter, the National Union of Metalworkers of South Africa led a six-week strike in the metals and engineering sector (starting on July 1), which adversely affected the manufacturing industry and dragged economic growth down in the third quarter.

And the obvious drawback in the fourth quarter, the growth figures for which will only be known next year, appears to be load-shedding. – Mail & Guardian

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