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South African Economic Growth Slows to 3.2% as Strikes Hit Mining Exports
South African economic growth slowed to an annualized 3.2 percent in the second quarter as mining exports slumped, offsetting higher spending during the soccer World Cup that lured thousands of visitors to the country.
The expansion in gross domestic product eased from 4.6 percent in the first three months of the year, Statistics South Africa said in a report released in Pretoria today. The growth rate was expected to slow to 3.8 percent, according to the median estimate of 16 economists surveyed by Bloomberg.
Spending during the World Cup, which ended on July 11, wasn’t enough to offset a drop in mining exports, which were hit by a transport workers strike and weaker global growth. Concern that the economic rebound in South Africa is losing momentum may prompt the Reserve Bank to cut its benchmark interest rate from 6.5 percent on Sept. 9.
“This recovery is going to slow down in the second half,” said Russell Lamberti, an economist at Econometrix Treasury Management in Johannesburg. “The global economy is definitely slowing down. With inflation falling and growth slowing, we may very well see more rate cuts.”
The rand strengthened to 7.3737 per dollar as of 3:52 p.m. in Johannesburg, from 7.4027 before the release of the growth data.
The Reserve Bank has cut its key rate seven times since December 2008 as the inflation rate fell inside the bank’s 3 percent to 6 percent target range, dropping to a four-year low of 4.2 percent in June. The rand has climbed 4.9 percent against the dollar in the past six months, easing price pressures.
Resilience
“We have had consistent quarter-on-quarter growth, indicating that the economy is a lot more resilient” than was expected, Rashad Cassim, deputy director-general of the statistics office, told reporters in Pretoria. “The important message of this data is that there is growth in the economy. The impact of the World Cup is diffused” and will probably also be reflected in the third-quarter data.
Africa’s biggest economy will probably expand 2.9 percent this year, compared with a 1.8 percent contraction in 2009, with the main risks “emanating from the global economy” central bank Governor Gill Marcus said on July 22. The economy needs to grow 7 percent a year over the next two decades to significantly reduce a 25.3 percent unemployment rate, according to Finance Minister Pravin Gordhan.
Being Positive
Today’s report “indicates regrettably an uncertain economic climate ahead of us,” Gordhan told lawmakers in Cape Town today. “However, let’s be positive and hope the prediction that our economy will still grow by 3 percent for the remainder of this year and the year as a whole happens to be true.”
The central bank’s leading business cycle indicator fell to 128.2 in June from 130.5 in the previous month, according to its website.
Manufacturing, which accounts for 15 percent of the economy, is under pressure as European governments scale back on spending and a stronger rand curbs export demand. Europe buys about a third of South African exports.
“The country’s economic recovery is expected to remain lacking real momentum,” Shoprite Holdings Ltd., South Africa’s biggest food retailer, said in a statement today. “South African consumers remained price sensitive due to the high rate of unemployment and personal debt.”
Mining Slump
Mining contracted an annualized 20.8 percent in the second quarter, the steepest decline in a year, as coal, gold and platinum output dropped, the statistics office said. Manufacturing growth slowed to 6.9 percent from 8.4 percent in the previous three months.
Construction growth eased to 1.5 percent from 2.1 percent and agriculture surged 11.6 percent compared with 3 percent in the first quarter. The retail trade and hotels industry expanded 5.8 percent, up from 3.3 percent, while growth in the finance and real-estate industry accelerated to 3 percent from 2.5 percent.
“The risk of another rate cut has increased with economic growth disappointing, inflation lower than expected and the rand at strong levels,” said Nicky Weimar, an economist at Nedbank Group Ltd. in Johannesburg.
To contact the reporter on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net
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