Economy recovering faster than expected

Johannesburg - South Africa's economy is recuperating faster than expected, according to analysts Moody's Economy.com.
    
They point out that the latest national accounts data showed that gross domestic product (GDP) growth quickened to a seasonally adjusted annual rate of 4.6% in the opening months of 2010, from 3.2% in the fourth quarter and 0.9% in the third. On a year-ago basis, the economy expanded 1.6%.
    
"The factory sector, which is sensitive to the global business cycle, has powered the rebound in each of the past three quarters thanks to improved external demand and inventory replenishment. Mining and quarrying, another economic driver, was the second largest contributor to growth in the first quarter as output of coal and other ores rose," the analysts note.
    
They add that the latest national accounts show a number of positive developments.
    
"All industries have resumed expanding since the recovery began in the third quarter of 2009. Wholesale, retail trade and accommodation turned the corner in early 2010 after contracting for seven consecutive quarters.

Consumer-orientated industries, which have been weighed down by a troubled labour market and the high household debt burden, also appear on the mend at last.
    
"Monthly data on retail sales, vehicle sales and manufacturing output have surprised to the upside recently, supporting our confidence that South Africa's recovery is on track. We expect the economy to expand around 3% this year, propelled by export-oriented manufacturing and a substantial monetary stimulus.

"A number of industries that supported the early stages of recovery will lose momentum but are not anticipated to become drags on the economy. The public sector's countercyclical spending will cool over the course of the year, as will construction as the boost from the World Cup wanes.
   
"Work stoppages in the transport industry, now in their third week, will likely weigh on growth in the second quarter by crippling activity in agriculture and other export-oriented industries. Also, the labour market's retrenchment in the first quarter could keep the rebound in the domestic sector subdued despite solid GDP growth," Moody's Economy.com said.
    
"South Africa's reliance on global demand also carries risks. A precarious fiscal environment in Europe, one of the country's key export markets, presents a threat to the speed and path of recovery. Swollen budget deficits and unrelenting market pressure have forced European governments to implement tough austerity measures.

"Fiscal consolidation in Europe will adversely affect activity across the region and beyond. We expect the eurozone recovery to falter by the end of the year, sending Europe back into a moderate recession," said the analysts.

- I-Net Bridge