Johannesburg - South Africa's gross domestic product (GDP) fell 3% in the second quarter of 2009 - the third successive quarter of negative growth in GDP - justifying last week's interest rate cut and possibly leaving the door open for another snip.
Statistics SA figures released on Tuesday showed that the fall in GDP, though significant, was less pronounced than the shock 6.4% decline in the first quarter of 2009. The 3% GDP fall was also in line with market expectations.
SA entered its first recession in 17 years in the first quarter of 2009. The fall in growth in the first quarter was the worst quarterly performance in 25 years. It's important to note that all figures quoted are quarter-on-quarter, seasonally adjusted and annualised percentage changes, unless otherwise stated.
ETM economist George Glynos pointed out that one of the surprises in the figures was the weak performance of the agricultural sector, which fell more than 17% in the second quarter. This subtracted 0.5% from the change in GDP in the period. Other sectors performed more or less as he had expected.
"This GDP figure justifies last week's rate cut and possibly opens the door for another half a percentage point cut. Much will depend on whether economic indicators remain weak in the third quarter," Glynos said.
He said the economy would struggle to return to growth in the third quarter, with the change in GDP probably close to zero before a return to the black in the fourth quarter. For the year as a whole, he expected GDP to fall by 2%. He did not foresee a spectacular recovery in 2010, with growth expected at only 2% to 2.4%.
Nedbank economist Carmen Altenkirch said "the usual suspects" had damaged the GDP figure. The biggest contribution to the GDP drop was from manufacturing, which declined 10.9% in the quarter and sliced 1.6 percentage points off growth. "Manufacturing is reeling from a double whammy of weak domestic demand as well as faltering exports."
Altenkirch pointed out that the retail sector was also weak, with a fall of 4.5% in the second quarter. "Consumers are under pressure because of high debt levels and weak confidence."
Altenkirch pointed out that the construction (stellar double-digit growth of 12.2%) and government (2.4%) sectors performed well - both reflecting fiscal stimulus.
She expected one more quarter of negative growth before GDP was back in the black and -2% for the year as a whole. She was pessimistic about 2010, expecting growth to be below 2%.
The Reserve Bank has responded to the recession by shifting its focus from emphasising inflation to focusing on growth, and has cut interest rates by five percentage points since December, bringing the prime overdraft rate to 10.5%.
- Fin24.com