Johannesburg - The worst drought in more than a century has cut South African farming output and hurt manufacturing, curbing growth in the economy to an annualised 0.6 percent in the fourth quarter.
Data released by Statistics SA yesterday showed that gross domestic product (GDP) growth eased from 0.7 percent in the third quarter against the market consensus of 0.9 percent. Disappointing economic growth at the end of last year is likely to heighten fears South Africa’s credit rating will be cut to “junk” and further unnerve investors concerned about President Jacob Zuma’s handling of the economy.
“This data makes it less likely that the Reserve Bank will follow up January’s 50 basis points interest rate hike with another rate rise this month, despite the deteriorating inflation outlook,” Capital Economics analysts said.
The bank has been hiking interest rates to tame rising inflation, despite weak growth. The Reserve Bank will announce its second interest rate decision on March 17.
The economy is under pressure from a severe drought and depressed global output, with the Treasury expecting growth at 0.9 percent this year from an estimated 1.3 percent last year.
“With all expectations that 2016 will be weaker still, this signals decelerating growth momentum in South Africa for three consecutive years, highlighting some long-standing concerns of the ratings agencies,” Standard Chartered head of Africa economic research Razia Khan said.
The economy’s rebound from a recession in 2009 has struggled to gain traction as commodity prices slumped and growth in South Africa’s biggest export market, China, slowed. South Africa’s outlook has deteriorated since last year because of the drought, prompting Finance Minister Pravin Gordhan last week to reduce his GDP growth forecast for this year by almost half to 0.9 percent. Agriculture contracted by an annualised 14 percent in the final three months of last year.
Growth forecast
Manufacturing, which makes up about 13 percent of the economy, contracted for three of the four quarters last year, declining by an annualised 2.6 percent in the final three months of last year.
Mining came out of recession in the fourth quarter, expanding 1.5 percent, mainly due to a recovery in electricity generation. The growth slowdown has contributed to rising government debt, leading credit rating agencies, including Standard & Poor’s, to downgrade South Africa’s debt close to junk. The Reserve Bank, International Monetary Fund and World Bank all forecast growth of less than 1 percent.
South Africa needed annual expansion of 7.2 percent from 2018 to achieve the government’s goals of reducing the jobless rate to 6 percent by 2030, the World Bank said last month. The unemployment rate was 24.5 percent in the fourth quarter.
The Barclays purchasing managers’ index increased to 47.1 points last month, up from 43.5 in January.
This was the highest level since October and above the average recorded in the fourth quarter.
* Additional reporting by Bloomberg
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