Bloomberg News

South Africa Economic Growth Likely Stayed Near Two-Year Low

November 29, 2011

(Updates with OECD forecasts in 13th paragraph.)

Nov. 28 (Bloomberg) -- Growth in South Africa’s economy, the biggest in Africa, probably stayed near a two-year low in the third quarter as Europe’s worsening debt crisis undermined demand for exports and mining output slumped, economists said.

Gross domestic product rose an annualized 1.8 percent in the three months through September compared with 1.3 percent in the second quarter, according to the median estimate of 20 economists surveyed by Bloomberg. Statistics South Africa will publish the data tomorrow at 11:30 a.m. local time in Pretoria.

The economy’s recovery has weakened as the Europe, which buys about a third of South Africa’s manufactured exports, threatens to fall into recession. Finance Minister Pravin Gordhan on Oct. 25 cut his growth forecast for this year to 3.1 percent from 3.4 percent, less than half the 7 percent expansion that the government says is needed to meet its jobs pledge.

“Although we are likely to see a modest uptick in third- quarter GDP numbers, the recovery is still largely uneven,” Jeffrey Schultz, an economist at Absa Group Ltd., South Africa’s largest retail bank, said in a telephone phone interview from Johannesburg. “Mining and manufacturing are really struggling.”

Business confidence slumped to its lowest level in a year in the third quarter as demand for manufacturing exports weakened, Rand Merchant Bank said on Sept. 6. The confidence index was little changed at 38 in the fourth quarter, the bank said on Nov. 23.

Rand Plunges

Investors have dumped South African assets as growth weakened and risk-appetite waned. The rand has plunged 21 percent against the dollar this year, the worst-performer of 16 major currencies tracked by Bloomberg, to 8.3245 as of 4:52 p.m. Johannesburg time. The benchmark FTSE/JSE Africa All Share Index declined 1.1 percent in 2011.

Johannesburg-based Pretoria Portland Cement Co., Africa’s largest maker of the building material, said on Nov. 8 annual profit slumped 22 percent as cement demand in South Africa declined for a fourth year. Sappi Ltd., the world’s biggest maker of glossy paper, has dropped 33 percent this year as rising costs and weaker paper sales led the Johannesburg-based company to close mills in Europe and South Africa.

Slower growth may threaten the government’s target of creating 5 million jobs by 2020, which is needed in order to reduce the unemployment rate to 14 percent from 25 percent currently. The economy is forecast by the government to expand 3.4 percent in 2012 and 4.1 percent in 2013.

‘Not a Pretty Picture’

“It’s certainly not a pretty picture,” Adenaan Hardien, chief economist of Cadiz African Harvest Asset Management, said in a phone interview from Cape Town. “We’ve seen the high- frequency data remaining very weak from the second to the third quarter. That will be reflected in the overall GDP numbers.”

Mining output slumped 5.4 percent in September from a year ago, contracting for the third consecutive month, the statistics office said on Nov. 10. The purchasing managers index was below 50, indicating a contraction in manufacturing output, for two months last quarter, according to Kagiso Securities Ltd.

The Reserve Bank, led by Governor Gill Marcus, has kept its benchmark interest rate unchanged at a 30-year low of 5.5 percent this year to support growth, even as price pressures increased. Inflation accelerated to the top of the bank’s 3 percent to 6 percent target range in October, the statistics office said on Nov. 23.

No Escape

“No country can actually escape the fall out of the global uncertainties that are currently prevailing,” Marcus said in a speech on Nov. 15. “The European environment holds many uncertainties and possible unthinkable consequences, and it is difficult to pre-empt this in our policy choices.”

Weak growth data could prompt the central bank to lower interest rates, even though inflation is accelerating, said Colen Garrow, an economist at Brait SA in Johannesburg. The Organization for Economic Cooperation and Development said today the central bank should consider cutting rates if the economic recovery continues to weaken.

“The first line of defense if the economy is weaker than projected should be monetary policy,” the Paris-based OECD said in a report. “In the event of a weakening economy, there therefore appears to be scope for further reductions in the Reserve Bank’s policy rate.”

--Editors: Nasreen Seria, Antony Sguazzin

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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