Johannesburg - After subdued economic activity between January and March, figures due tomorrow from Statistics SA may show a second-quarter surge in gross domestic product (GDP). Macquarie Securities economist Elna Moolman said growth could be nearly 4 percent annualised, while Absa Capital’s Jeff Gable put the figure at 3.5 percent.
Both economists warned the rebound was due largely to the low base in the first quarter when the economy grew less than an annualised 1 percent. Moreover, the growth outlook for the third quarter is grim, due to widespread strikes and threats of strikes in several sectors.
Mining is particularly vulnerable as rival unions are determined to establish themselves as tough negotiators, demanding increases of more than 100 percent in some cases.
The Reserve Bank warned last month that disruptions at mining operations could spell major production losses in manufacturing, a sector that has been in decline since 1981.
It said in its annual report that “mining-related products accounted for up to 25 percent of manufacturing output last year, implying a major knock-on from strikes” at mines.
Other industries are already under siege. Car manufacturing workers are on strike and construction and clothing and textile stoppages are looming.
Currency weakness due largely to global events is complicating the situation. The Reserve Bank’s monetary policy committee (MPC), which meets next month, will hesitate to cut its repo rate from 5 percent, while a weak rand is stoking cost pressures in the economy.
Last month inflation, at 6.3 percent, breached the ceiling of the bank’s 3 percent to 6 percent target range and the MPC may even feel obliged to hike rates to contain price rises.
Discussing the bank’s dilemma in a note on Friday, FNB household strategist John Loos said: “On the one hand, the Reserve Bank is more accommodating of economic growth these days. In the most recent MPC statement, the governor [Gill Marcus] alludes to this when she says: ‘The downside risk to growth has already resulted in the bank being more tolerant of inflation at the upper end of the target range than would normally have been the case, an approach that is consistent with a flexible inflation targeting framework’.
“As a result, many forecasters do not see the latest inflation data as necessarily leading to an interest rate hike any time soon. However, the fact is that CPI [consumer price index] inflation is above the target limit and somewhere the bank has a tolerance limit.”
Trade data due later in the week will show whether the country’s export performance is improving. The gap between export earnings and import costs rose to R75.9 billion in the first half from R51.6bn in the same period last year.
However, the deficit shrank to R7.7bn in June, compared with R11bn in May.
Export growth may pick up. Data from major trading partners recently show economic conditions are improving.
In the euro zone, second-quarter gross domestic product rose by 0.3 percent on the quarter – better than market forecasts for a 0.2 percent rise, according to Stanlib chief economist Kevin Lings. The UK, US and China are all improving too. - Business Report