The South African economy registered a 3.8% growth rate in the fourth quarter of 2013 which will give finance minister Pravin Gordhan something to smile about when he present the 2014/15 budget today.
The fourth quarter gross domestic product (GDP) figures were released by Statistics SA yesterday and showed a remarkable recovery from the 0.9% growth registered in the third quarter. The numbers will be huge relief as they arrested a decline that was threatening to push the economy towards negative growth. However this recovery will not be sustained in the first quarter of 2014 due to a crippling strike underway in the platinum mining industry. And the the 2013 annual growth remain unimpressive at 1.9% down from 2.5% in 2012.
Overall Gordhan still has a tough job juggling the rising expenditure demands against inadequate revenue base. And he does not have much space on the borrowing field. That view is well captured in comments by Arthur Kamp, Sanlam Investments economist. This budget (2015/15), said Kamp, is about debt sustainability in a low growth environment. “So what the Minister has to show is a decline of levels of spending relative to GDP – and that probably means that real non-interest spending is going to be a constraint.”
Economists say the 3.8% growth came above consensus but it was no huge surprise.
In its note about GDP growth Nedbank Economic Unit said “As expected the economy regained some lost ground in the final quarter of last year.”
Real GDP grew by 3,8% q-o-q on a seasonally adjusted annualised basis, up from the strike-inflicted 0,7% in the third quarter and better than market expectations of 3,4%.”
In contrast to previous quarters, recoveries in the primary and secondary sectors were mainly responsible for the better-than-expected fourth quarter growth performance. Value added by agriculture rose by 6,4% q-o-q despite relatively dry conditions in some parts of the country.”
Neddbank economists also noted that “Higher output of gold, platinum and other metal ores supported the mining sector, where value added rose by 15,7%, up from 11,4% in previous quarter. The rebound in the production of vehicles following the strikes in the third quarter, coupled with higher output by the broader food and beverages as well as chemicals industries lifted valued added by manufacturing by 12,3% over the quarter off the low base established in the third quarter.”
Looking ahead the Nedbank economists said “The pace set towards the end of last year is unlikely to have been sustained in early 2014. The protracted strikes in the platinum industry will undermine mining production in the first quarter, while signs of stress on household finances following the unexpected hike in interest rates in January and rising inflationary pressures due to a weaker rand are likely to contain growth in consumer spending.”
However, said Nedbank, economic activity is expected to pick up as the year progresses. “The mining, manufacturing and construction sectors should benefit from a combination of strong global growth, a weaker rand and increased infrastructure spending by the public sector.”
They added that household spending is expected to moderate as wage growth in public sector slows, the cost of living increases due to the weaker rand and indebted consumers adjust to rising interest rates. “Overall, we expect GDP to grow by a moderate 2,6% in 2014 as a whole.”
The Nedbank team added that the better-than-expected GDP figures are unlikely to alter the policy thinking of the Reserve Bank’s Monetary Policy Committee significantly as some rebound was widely anticipated in the markets and within the Bank. “The outlook for economic growth remains moderate with significant downside risks given global challenges, weak domestic confidence, increasingly volatile financial markets, the higher cost of credit and the upcoming local elections.”
“Encouragingly, there has at least been some pause to the rand’s slide in recent weeks, although it remains very vulnerable given both the large current account and fiscal deficits and the change in global investor sentiment towards emerging markets. The Monetary Policy Committee (MPC) will probably remain hawkish until either the rand recovers lost ground more convincingly or the economy weakens sharply. We expect the MPC to hike rates once again in March, before holding steady as the rand pulls back and signs of slowing domestic demand emerge.”