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Strikes dent SA growth, slows to 1.2%

Nov 27 2012 12:21

Finance Minister Pravin Gordhan delivers his mini budget against the backdrop of a spate of wildcat strikes that rocked the SA economy and downgrades by international ratings agencies, Moody's and Standard & Poor's. (AFP)

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Johannesburg - South Africa's economic growth slowed to 1.2% in the third quarter of 2012 on a seasonally adjusted and annualised basis, compared with a revised 3.4% rise in the second quarter, data showed on Tuesday.

On an unadjusted year-on-year basis, economic growth was at 2.3% in the third quarter from a revised 3.1% in the second quarter.

A Reuters poll of 15 economists expected growth to have slowed to 1.5% in the third quarter because of strikes in the mining sector.

Investec Group economist Annabel Bishop said the third quarter GDP data clearly has captured the impact of South Africa's work stoppages stemming from recent illegal strike action on economic activity until the end of September.

"Growth for the full year of 2012 is likely to be lower than the 2.5% previously expected, but still above 2.0%, compared to the average of 3.3% since 1994.

"The growth potential of the South African economy is estimated at 3.5% - 4.0% - above this could be deemed inflationary as demand led inflation rises.

"Clearly there is little evidence of demand led inflation pressures currently, with price pressure stemming instead from exogenous factors such as rand weakness and high food prices, and the supply side concern of real wage increases.

"Given the upward price pressures the South African Reserve Bank is unlikely to alter interest rates on the basis of the third quarter's poor outcome, indeed it already acknowledged the likely slowing in growth in the November MPC (monetary policy committee) statement.

"In the absence of further marked strike action the economy should see economic growth pick-up to 3.0% in 2013, and lift to 5.0% by 2016, driven additionally by greater consumption expenditure (both government and the private sector) and fixed investment.

Christie Viljoen, economist at NKC Independent Economists, said the weak growth number is mostly attributed to the contraction in mining as all the other sectors recorded growth.

"Obviously this was expected given the strikes we had in the mining sector, so it looks like it was worse than anticipated.

"The agriculture sector continued to grow strongly, so we'll have to see what happens there in the fourth quarter with the strikes that we've got there at the moment as well."

Nomura's Peter Attard Montalto said it would appear mining was roughly on forecast so the surprise came from other segments most likely effected by the transport workers strike and petrol shortages more than we had expected.

"Overall, today's number probably won't meaningfully surprise the MPC enough yet to get a cut in January without more international growth shock evidence.

"Given the revision up to the previous quarter on quarter number the amount of surprise here is limited really and shows the economy slowing but with mining a small part of the economy in volume terms the impact of the strike in first round effects remains limited.

"It is the wider second round effects on sentiment and FDI (foreign direct investment) that we have to wait for into next year that can ultimately prompt the MPC into a cut."

The rand was firmer at R8.8370/$ at 11:53 from R8.847 before the data was released at 11:30.

The yield on the benchmark 2026 government bond dipped to 7.59% from 7.6% beforehand.

South Africa's economy has been hesitant to recover since a 2009 recession, despite the SA Reserve Bank cutting interest rates by 50 basis points in July to help support economic growth.

A festering debt crisis in Europe, which takes in a quarter of South Africa's exports, is weighing on domestic growth prospects, while three months of violent strikes in the mining sector have also put an added drag on prospects for growth.

The Finance Ministry and the Sard had already cut growth projections to 2.6% this year, in line with the IMF.

The ministry has said the economy needs to grow by 7% on a sustained basis to make a dent on a 25% unemployment rate.

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mining unrest  |  strikes  |  sa economy



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