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Absa Capital cuts 2013 growth forecast

Johannesburg - Absa Capital has downwardly revised its economic growth outlook for 2013 to 2.3% from 2.7%‚ joining several other institutions that have lowered their forecasts in recent weeks amid faltering growth indicators.

Absa Capital released its third-quarter perspectives on Monday.

The Reserve Bank expects growth at 2.4%‚ but recently said this figure might be revised downwards‚ while Rand Merchant Bank sees the economy expanding by 1.9% this year.

The downward revisions come after a weaker-than-expected annualised and seasonally adjusted quarter-on-quarter (q/q) gross domestic product (GDP) growth of 0.9% in the first quarter of 2013.

“Growth prospects overall this year remain tepid given the weakness of domestic and international demand and the downward drift of commodity prices‚” Absa Capital said.

Absa Capital expects the economy to grow by 3.2% in 2014 and by 3.5% in 2015.

The weaker-than-expected growth in the first quarter came as a result of weak performance by the manufacturing sector. Manufacturing was affected by the timing of Easter holidays in 2013 compared with last year and supply constraints.

Absa Capital economist Peter Worthington said manufactured output in April pointed to some recovery in the second quarter.

Manufacturing production rose 7% year-on-year (y/y) in April following a 2.2% y/y decline in March. The strong jump was partly attributed to the Easter holidays falling both in March and April 2013.

Stagnant household consumption and private investment would likely mean that faster economic growth rates were unlikely this year in the absence of major structural reforms‚ the report showed.

Several factors lie behind the slowdown in household consumption spending‚ Worthington said‚ and identified the “lack of job growth” as the most important factor by far.

“Weaker credit take-up by households has also likely curbed spending‚” he said.

Absa Capital identified supply factors such as electricity disruptions and production disruptions due to strikes in the mining sector as downside risks to the economic growth outlook.

The quarterly perspectives forecasts inflation to breach the Reserve Bank’s 3% to 6% target at an average of 6.7% in the third quarter mainly due to upward pressure from higher petrol and electricity costs.

The petrol price will go up by 84c per litre on Wednesday‚ which Absa Capital economists see as likely adding 0.4 percentage points to inflation.

“Additionally‚ municipalities are scheduled to implement the electricity regulators 8% price hike‚ and with electricity accounting for 4.2% of the CPI basket‚ the CPI will see a further 0.3 percentage point rise‚” Worthington said.

The current account deficit is expected at 6.5% of GDP in the second quarter‚ and at 6.6% in 2014 and 2015.

“The structurally large trade and current account deficits are likely to continue. We still expect SA’s exports‚ albeit they have recovered somewhat from the widespread mining and transport sector strikes in the second half of last year‚ to remain constrained‚” Worthington said.

Absa Capital forecast the rand at R10.50/$ by mid-year before retracing slightly towards year-end “as the bad news likely works its way out of the system”.

“Still‚ with the USD (dollar) seemingly set to strengthen generally‚ it is hard to see the rand returning to levels that prevailed in the early part of this year‚” he said.

 
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