The South African economy is struggling against strong headwinds in 2013, and growth could be significantly below 2%.
IHS senior economist Ronel Oberholzer looks at the significant changes for South Africa’s economic outlook and the implications for investors.
The shockingly low growth figure for the first quarter of 2013 significantly changes the expected growth outcome for 2013. Should the current rate of economic expansion continue (that is 0,9% over the next three quarters), growth for the 2013 calendar year will be significantly below an average of 2%.
The considerable impact of disruptive labour action across many sectors in the economy, coupled with sluggish global growth, is creating pertinent headwinds for the economy.
The weakened currency (the South African rand has weakened by around 14% against the US dollar since the end of 2012) will help to improve the country’s international competitiveness, but the benefits will only be reaped should the mining and manufacturing sectors be able to withstand significant disruptions to production and global demand increases.
On-going policy uncertainty, coupled with excess supply and weakening domestic demand, is bound to postpone private investment. In addition, employment concerns, along with the rising cost of living, increase uncertainty, thus raising the risk to the growth forecast of 2,9% for 2013.
Consumers can now expect a growth outcome for 2013 closer to 2,5%, with significant downside risks should the global economy falter. This outcome is likely to postpone our expectation of an interest rate increase to 2014 instead of the end of 2013.
According to Statistics SA, real seasonally adjusted GDP slowed to an annualised 0,9% in the first quarter of 2013, compared to growth of 2,1% in the fourth quarter of 2012.
According to the figures, the largest contributions to the quarter-on-quarter growth were the mining and quarrying industry, and finance, real estate, and business services – each contributing 0,7 of a percentage point; general government services, contributing 0,3 of a percentage point; and the wholesale, retail, motor trade, catering and accommodation, and the transport, storage and communication industries, each contributing 0,2 of a percentage point.
Annually, real GDP at market prices grew at 1,9% year-on-year in the first quarter, down from the previous quarter’s 2,3% year-on-year growth.
The mining sector recovered by 14,6% in the first quarter of 2013, following a beleaguered contraction in the fourth quarter of 2012 of 9,3% as labour unrest took its toll. However, the outlook for mining remains muted as global commodity prices trend sideways to downwards, while global growth struggles to gain momentum.
High input costs in the mining sector are also expected to impede a recovery in this sector, while longer-term investment remains uncertain as investor perceptions are likely to be negatively affected by a prevailing policy uncertainty.
The secondary sector saw contraction from the loss in production due to the Easter holiday period, and mediocre domestic and global demand. The largest sub-sector, manufacturing, saw a stellar contraction of 7,9% in the first quarter of 2013, following growth of 5% in the third quarter.
Manufacturing thus subtracted 1,2 percentage points from overall first-quarter growth. A drop in electricity demand also led to negative growth of 3% in the electricity sub-sector, while growth in the construction sector only managed 0,9% from a weak 0,2% growth in the previous quarter.
The tertiary sector, making up two-thirds of overall GDP, showed steady growth as all sub-components registered mild growth in the first quarter. The wholesale and retail trade sector grew at 1,9%, slightly stronger than the 1,5% recorded in the fourth quarter of 2012.
Some concern centres around the consumer’s ability to keep up this spending pattern as employment concerns re-emerge, personal debt levels remain high, and the cost of living increases. The transport and finance sectors showed some increase from 1,9% to 2,2%, and 2,9% to 3,3% respectively. Government activity decreased slightly from 2,6% to 1,9%.
IHS senior economist Ronel Oberholzer looks at the significant changes for South Africa’s economic outlook and the implications for investors.
The shockingly low growth figure for the first quarter of 2013 significantly changes the expected growth outcome for 2013. Should the current rate of economic expansion continue (that is 0,9% over the next three quarters), growth for the 2013 calendar year will be significantly below an average of 2%.
The considerable impact of disruptive labour action across many sectors in the economy, coupled with sluggish global growth, is creating pertinent headwinds for the economy.
The weakened currency (the South African rand has weakened by around 14% against the US dollar since the end of 2012) will help to improve the country’s international competitiveness, but the benefits will only be reaped should the mining and manufacturing sectors be able to withstand significant disruptions to production and global demand increases.
On-going policy uncertainty, coupled with excess supply and weakening domestic demand, is bound to postpone private investment. In addition, employment concerns, along with the rising cost of living, increase uncertainty, thus raising the risk to the growth forecast of 2,9% for 2013.
Consumers can now expect a growth outcome for 2013 closer to 2,5%, with significant downside risks should the global economy falter. This outcome is likely to postpone our expectation of an interest rate increase to 2014 instead of the end of 2013.
According to Statistics SA, real seasonally adjusted GDP slowed to an annualised 0,9% in the first quarter of 2013, compared to growth of 2,1% in the fourth quarter of 2012.
According to the figures, the largest contributions to the quarter-on-quarter growth were the mining and quarrying industry, and finance, real estate, and business services – each contributing 0,7 of a percentage point; general government services, contributing 0,3 of a percentage point; and the wholesale, retail, motor trade, catering and accommodation, and the transport, storage and communication industries, each contributing 0,2 of a percentage point.
Annually, real GDP at market prices grew at 1,9% year-on-year in the first quarter, down from the previous quarter’s 2,3% year-on-year growth.
The mining sector recovered by 14,6% in the first quarter of 2013, following a beleaguered contraction in the fourth quarter of 2012 of 9,3% as labour unrest took its toll. However, the outlook for mining remains muted as global commodity prices trend sideways to downwards, while global growth struggles to gain momentum.
High input costs in the mining sector are also expected to impede a recovery in this sector, while longer-term investment remains uncertain as investor perceptions are likely to be negatively affected by a prevailing policy uncertainty.
The secondary sector saw contraction from the loss in production due to the Easter holiday period, and mediocre domestic and global demand. The largest sub-sector, manufacturing, saw a stellar contraction of 7,9% in the first quarter of 2013, following growth of 5% in the third quarter.
Manufacturing thus subtracted 1,2 percentage points from overall first-quarter growth. A drop in electricity demand also led to negative growth of 3% in the electricity sub-sector, while growth in the construction sector only managed 0,9% from a weak 0,2% growth in the previous quarter.
The tertiary sector, making up two-thirds of overall GDP, showed steady growth as all sub-components registered mild growth in the first quarter. The wholesale and retail trade sector grew at 1,9%, slightly stronger than the 1,5% recorded in the fourth quarter of 2012.
Some concern centres around the consumer’s ability to keep up this spending pattern as employment concerns re-emerge, personal debt levels remain high, and the cost of living increases. The transport and finance sectors showed some increase from 1,9% to 2,2%, and 2,9% to 3,3% respectively. Government activity decreased slightly from 2,6% to 1,9%.
