Johannesburg - Strikes in the third quarter contributed to a 6.6 percent contraction in the manufacturing sector, slicing deep into economic growth. Statistics SA reported yesterday that gross domestic product (GDP) expanded only 0.7 percent in the quarter, below expectations that the economy would grow 1 percent, following a surge of 3.2 percent in the second quarter off a low first-quarter base.
Kevin Lings, the chief economist at Stanlib, said the manufacturing sector subtracted around 1 percentage point from third-quarter growth. “This means that, without manufacturing, GDP would have grown by 1.7 percent, which is itself fairly modest.”
The figures are quarterly changes adjusted for inflation and seasonal factors and multiplied by four to show an annual trend. The third-quarter performance is the worst since the recession of 2008/09 when the economy contracted for three consecutive quarters.
Manufacturing’s poor performance was no surprise. Reserve Bank governor Gill Marcus noted last week that “protracted strikes had resulted in a 27.9 percent decline in the production of motor vehicles, parts and accessories” in the third quarter.
Other sectors fared better, with mining rebounding 11.4 percent, after shrinking 5.4 percent in the second quarter – also largely due to strikes.
However, Nedbank saw “downside surprises” in retail and wholesale trade, which was up 3.2 percent, finance (up 3.5 percent) and government services (1 percent higher).
Annabel Bishop, the chief economist at Investec, blamed the weak overall outcome on a variety of factors: “Significant strike-related work stoppages, falling confidence levels, slowing consumer spending due to high indebtedness and moderating growth in real disposable incomes, inconsistent electricity supply, rising government regulations and red tape, and a reduction in the ease of doing business.”
These domestic issues compounded the challenges of an uncertain global environment. A promising recovery in 2010 was derailed in the following year by a recession in the euro zone and slowing growth in China, South Africa’s two biggest export markets.
FNB household strategist John Loos said the “broad multi-year slowdown is largely explained by the wearing off of the massive monetary and fiscal stimuli that were applied across the world around 2008/9”. Recent signs that the global outlook was improving had done little to boost local growth.
Bishop predicted full year growth of 2 percent, “with a real risk that it could come out lower at 1.8 percent”.
Last week Marcus revised the Reserve Bank’s growth forecast for the year down to 1.9 percent from the 2 percent estimated in September.
In his medium-term budget policy statement last month, Finance Minister Pravin Gordhan predicted growth of 2.1 percent this year from his 2.7 percent at the time of the February budget.
The slower growth rate has implications for the tax take – and the likely shortfall between government revenue and spending. In October, Gordhan estimated a budget deficit equal to 4.2 percent of GDP. If the deficit is bigger, the country could face a further downgrade after three rating agencies cut the sovereign rating one notch over the past 13 months.
The lower the rating, the more money taxpayers will have to fork out to cover the interest bill.
Disappointing economic activity also means fewer jobs. Bishop noted: “The longer economic growth remains significantly below potential of about 3.5 percent, the worse private sector unemployment becomes at a time when the labour force is expanding.”
Despite the poor performance, economists are not expecting a cut in the Reserve Bank’s 5 percent repo rate. Nor are they expecting an early rate hike.
Mohammed Nalla, the head of strategic research at Nedbank Capital, said rates would remain flat at least until the third quarter of next year. - Business Report