(Updates with credit growth in last paragraph.)
Aug. 30 (Bloomberg) -- South Africa’s economy, Africa’s biggest, expanded an annualized 1.3 percent in the second quarter, its slowest pace in almost two years, as manufacturing and mining output plunged.
Gross domestic product growth eased from a revised 4.5 percent in the first quarter, Statistics South Africa said in a report released today in the capital, Pretoria. The median estimate of 18 economists surveyed by Bloomberg was for an expansion of 1.6 percent.
European governments have pared spending this year to ease the debt crisis, limiting exports to a region that buys about a third of South African manufactured goods. That’s weakening the economy’s recovery, adding to expectations the central bank may keep its benchmark interest rate at a 30-year low of 5.5 percent this year or possibly reduce it.
“We’re running at well below our potential growth rate,” Arthur Kamp, an economist at Sanlam Investment Management, said in an interview from Cape Town today. “Interest rates will likely remain on hold well into next year. If there’s a material weakening in the global economy, the discussion may shift to whether we need a rate cut.”
The rand weakened to 7.0771 against the dollar as of 12:21 p.m. in Johannesburg from 7.0682 before the data was released. The yield on the R157 government bond, due 2015, fell 5 basis points, or 0.05 percentage points, to 6.501 percent.
Growth is lagging the government’s targeted annual expansion of 7 percent that it says is needed to meet a pledge to create 5 million jobs in the next decade. That is forecast to reduce the unemployment rate to 14 percent from 25.7 percent currently.
The deputy central bank governor, Lesetja Kganyago, said on Aug. 25 that the bank may need to scale back its 3.7 percent growth projection for this year if the global slowdown continues. Citigroup Inc. said on Aug. 25 the economy will probably expand 3.4 percent this year, lower than its previous forecast of 3.8 percent.
Manufacturing, which makes up 15 percent of the economy, contracted an annualized 7 percent in the second quarter, while mining dropped 4.2 percent, the statistics office said. Agricultural production plunged 7.8 percent.
That was partly offset by a 5.7 percent expansion in government output, 4.1 percent growth in the retail trade industry and a 2.9 percent increase in financial services, the agency said.
“The domestic economy has not yet been restored to sufficient health for South Africa to be able to shrug off these global risks,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in a note to clients. “It makes for uncomfortable reading.”
Data released by the central bank today indicates a slow recovery in credit demand, adding to expectations the bank will keep its key interest rate unchanged. Borrowing by consumers and companies rose 5.7 percent in July from a year earlier, after expanding 5.3 percent in the previous month.
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