Johannesburg - South Africa’s economy barely grew in the third quarter of the year, which means measures should be fast tracked to accelerate growth to take advantage of the reprieve that the country received from rating agencies.
Gross domestic product (GDP) expanded by only 0.2 percent in the second quarter between July and September, compared with a revised 3.5 percent in the second quarter, Statistics SA said yesterday.
The figure was just shy of the 0.5 percent expected by the market.
The rand firmed 0.6 percent in response to the release of the data, touching a session high of R13.64 to the dollar from R13.73 before the release.
The economy expanded by 0.7 percent from a year earlier.
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The economy would probably expand at the slowest pace this year since the 2009 recession, analysts said.
Mining production rose 5.1 percent and the finance industry grew by 1.2 percent.
The meagre growth in the quarter was led by a 3.2 percent decline in the manufacturing sector, followed by a 2.8 percent decline in the electricity sector and a 2.1 percent contraction in trade and accommodation.
Manufacturing now accounts for only 13 percent of the country's economy, down from around 25 percent two decades ago.
The National Treasury expects the local economy to expand by 0.5 percent this year while the Reserve Bank said it projected an expansion of 0.4 percent during 2016.
KPMG economist Christie Viljoen said: “This implies a growth rate of around 0.7 year-on-year during the final quarter. However, this could be challenging, considering that the RMB/BER business confidence index declined by four points during the fourth quarter to just 38.”
Last Friday, S&P Global Ratings kept South Africa’s sovereign debt score unchanged on the lowest investment level with a negative outlook, but cut the country’s local debt rating to match the sovereign.
S&P said that it expected to see GDP growth of 1.4 percent next year.
“The rating agency warned on December 2 that it could downgrade the South African sovereign’s rating to non-investment grade if economic growth does not improve in line with its current expectations. Other risk factors include a slower narrowing in the fiscal budget deficit or a decline in GDP per capita levels in US dollar terms, that is due to weak growth and/or a shock to the exchange rate,” said Viljoen.
Nedbank said it expected the economy to fare only slightly better in the final quarter of this year, producing a GDP growth rate of around 0.4 percent in 2016 as a whole.
It said yesterday’s GDP figures confirmed that the economy remained weak but at least managed to grow, however modestly.
“South Africa also recently escaped damaging sovereign risk rating downgrades to junk status. Although these developments have reduced the chances of further monetary tightening in early 2017, the Monetary Policy Committee is likely to remain cautious given the downside risks posed to the rand by a volatile domestic political landscape and changing global dynamics.”
Nedbank said consequently, the probability of another 25 basis point hike in interest rates early next year could not be completely ruled out.
“By the second half of 2017 interest rates should begin easing as inflation begins to fall.”