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High unemployment to sap growth

Mar 07 2013 14:56 Reuters

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Johannesburg - South Africa's economic growth will remain subdued this year with persistently high unemployment holding back consumer spending, a Reuters poll found on Thursday, although the economy is expected to pick up next year.

The poll of 21 economists in the Reuters Econometer survey suggests growth will come in at 2.6% this year and accelerate to 3.4% next year, consensus forecasts that are unchanged from the previous month.

In its February budget, the Treasury trimmed its own growth forecast to 2.7% for this year - half South Africa's pre-2008 financial crisis average - from a previous forecast of 3.0% in its October statement.

Economists also said the Reserve Bank would probably keep interest rates unchanged at 5% for the rest of this year, before raising them to 5.5% by the end of 2014, similar to the survey taken last month.

"The demand sectors are going to show some pressure (because) I think the retail sector has been showing signs of weakening," said Colen Garrow, economist at Meganomics.

Retail sales growth has been in decline since June, when it peaked at 8.3% year-on-year, falling to just 2.3% in December. This reflects the poor state of household consumption and expenditure with one-in-four out of work, according to official data.

Carmen Nel, economist at Rand Merchant Bank, had a lower forecast for economic growth for this year because of a pick-up in inflation, a sharp moderation in employment growth and also tightening in the credit environment.

Unemployment fell to 24.9% in the last quarter of 2012 from 25.5% in the third quarter but is expected to remain stubbornly high, contributing to the weakness of the biggest contributor to GDP - consumption spending.

Growth in credit demand from South Africa's private sector also slowed to 8.64% year-on-year in January compared to a 10.09% rise in December.

The Treasury has said in the past that South Africa would need to grow at a rate of 7% a year in order to reduce unemployment.

While the expected 3.4% growth rate in 2014 won't be enough to bring down unemployment significantly, it may draw in investment from abroad and boost the battered rand by about 4% this time next year. 

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unemployment  |  sa economy  |  gdp


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