Johannesburg -
Tuesday's weak second quarter GDP figure validated the SA
Reserve Bank's decision to cut interest rates further in August,
Nedbank Group's economic unit said.
Earlier Statistics SA said that seasonally adjusted real GDP at
market prices for the second quarter of this year decreased by an
annualised rate of three percent compared to the first quarter of
2009 when it declined 6.4%.
"Even though some economic indicators suggest that the worst of
the slide is probably behind us and that the local economy may even
emerge gradually from 'official recession' later this year, the
recovery, both globally and locally, is expected to be slow and
sluggish, while excess capacity and weak demand will reinforce the
downward trend in inflation in the months ahead," Nedbank said.
As a result, it added that it expected another 50 basis point
cut in interest rates in October, bringing the prime rate down to
10% by year end.
According to Nedbank, economic conditions would remain weak for
the rest of the year, but some levelling out was expected in the
third quarter followed by a slightly better performance in the
final quarter.
"Much still depends on the state of the global economy," Nedbank
said, adding that global activity had improved slightly in the
second quarter.
"China's economy picked up pace, boosted mainly by a massive
fiscal stimulus package and aggressive credit growth.
"The rates of decline in US and UK GDP slowed down to around one
percent, while Germany, France and Japan even managed to produce
positive, albeit modest, growth rates."
Overall, the global economy appeared to be gradually levelling
out, helped mainly by highly stimulatory fiscal and monetary
policies as well as aggressive stockpiling of bulk commodities by
China.
However, Nedbank said it still expected only a slow and weak
recovery off a very low base over the next six to 12 months as the
short-term effects of the various fiscal stimulus packages started
to fade and the anticipated build up in global inventories proved
disappointing.
"The global economy will instead be hampered by altered credit
markets, a massive debt overhang and higher unemployment, resulting
in subdued and sluggish growth in the second half of 2009 and for
much of 2010," Nedbank noted.
Hope for mining
Volatile and weak performance was therefore still expected from
the main exporters in the mining and manufacturing sectors.
"Mining should fare better than manufacturing, supported by
stronger Chinese demand and some degree of restocking in some
industrialised countries," Nedbank added.
Higher unemployment, falling income and fragile confidence would
continue to undermine household demand, keeping spending in check
and containing credit demand.
"As a result, the retail trade, hotels, restaurants, finance,
insurance and real estate industries will all be subdued, but some
consolidation is likely in the third quarter before a modest
recovery starts in the fourth quarter."
Nedbank said lower interest rates and heavily discounted pricing
might revive demand for durable goods in the months ahead, but a
broad recovery was only likely once job losses and household
finances improve.
"In contrast, construction and general government activity is
likely to remain positive, but the rate of growth is expected to
slow further in the months ahead.
"This is partly as some projects related to the hosting of the
Fifa World Cup near completion and the flow of new projects from
the private sector dries up, but also as pressure on government
finances starts to mount in face of falling tax revenue."
Nedbank said that overall, South Africa's GDP was still expected
to contract by about 2% in 2009 as whole, before growing by
around 1.7% in 2010.
- Sapa