The economy is growing, but so slowly that it is not going to make much difference. The annualised third quarter growth figure has come in at 0.7%. We are worried, but what about our experts…..?
Dawie Roodt from the Efficient Group:
Average growth for the first three quarters now stands at 1.9% – probably the reason the SARB lowered its forecast for the year to 1.9%. That also means that if growth comes in at below 1.9% for the final quarter, then growth for the year will be below 1.9%. And as things stand, weak demand, strikes on the mines and the "normal" structural problems in the economy, mean growth in the 4th quarter is quietly likely going to be sub 1.9%. Under these circumstances, monetary policy is rather ineffective to support the economy any further. What we need is better labour relations, an efficient state, and clear macroeconomic policies – but for that we need solid political leadership…
Ian Cruickshanks from SAIRR:
This latest number of 0.7 percent quarter on quarter is very disappointing, when compared to Q2’s revised 3.2 percent. Manufacturing, which is 15 percent of the economy, was down . Strikes, particularly in the motoring industry, had an overall impact on manufacturing and on the economy as a whole. This could be expected to continue into Q4. I now fear we may not get to 1.9% GDP growth for the year as a whole. The stock market may be booming but it is difficult to consider allocating fresh funds to the market with the economy in this state.
Mohammed Nalla from Nedbank:
SA’s GDP printed at 1.8% y/y and 0.7% q/q, below consensus estimates of 2% and 1% respectively. We remained bearish on this data given the torrid Q3 which saw labour unrest impact the vehicle sector, as well as a failure of the mining sector to rebound from an already low base. Retail sales and manufacturing also posted negative surprises during the quarter and as such, it is not surprising to see this filter through to headline GDP.
George Glynos from ETM:
A key factor weighing on domestic output in the third quarter was a prolonged period of strike activity in vehicle production industry, while a weaker consumptive sector is expected to have made a less pronounced contribution to growth relative to previous quarters. The domestic economy is in the midst of a cyclical downswing as the initial support to growth stemming from SARB policy loosening wanes while the subsequent inflationary pressures erode purchasing power. Not only cyclical, but also structural issues continue to weigh on domestic production growth and unless reforms which generate a less hostile business and production environment are implemented, economic growth will struggle to gain meaningful traction. 2014 looks set to be a tough year. Why do I care? A softer than expected GDP number will raise further concern at the SARB as it suggests that the underlying economic weakness is even more pronounced than expected. While this may entice market players to increase calls for a deeper reduction in interest rates, with the ZAR still vulnerable and inflation still sticky the SARB is unlikely to take any policy action.
Peter Attard Montalto from Nomura:
Strike action was a partial bug bear affecting the end of the quarter in particular in the car industry (though that will really probably be felt in Q4 because of the peak of the strike in October). Overall the wage round has progressed with tight bursts of layoffs that have not been overly long lasting in sectors outside the headlines. As such the strike impact has been mainly felt in the very weak manufacturing number and not more widely. Broadly SA has followed much similar patterns to other emerging markets with a weak Q3 as global demand has ebbed and sentiment has taken a knock from the goings on around tapering and the shut down in the US. More broadly we can see the constraints the local economy is under not only the usual structural issues, but also on households’ indebtedness and the slower pace of credit growth. Manufacturing was really the dog of the quarter, though actually its performance wasn’t that different from Q1. The clearly significant volatility in seasonally adjusted output is down to strikes, but even accounting for this we are seeing underlying weakness thanks to slow domestic investment rates and slower export demand. Companies have also been running very low inventory levels (as a % of GDP), which we expect to have been repeated in Q3 when the expenditure breakdown is provided by the SARB soon. That may also be feeding into the volatility of output. We will most likely have to downgrade our 2013 growth forecast to 1.9% from 2.0% previously.
Conclusion: South Africa needs to boost job creation, but it ain’t going to do it at these levels of economic growth. The beloved country must be weeping…
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