- Agriculture contracts 14% in quarter, manufacturing drops 2.6%
- Government forecasts economy to expand 0.9% this year
The worst drought in more than a century cut South African farming output and hurt manufacturing, curbing growth in the continent’s second-largest economy to an annualized 0.6 percent in the fourth quarter.
The economy’s rebound from a recession in 2009 has struggled to gain traction as commodity prices slumped and growth in South Africa’s biggest export market, China, slowed. South Africa’s outlook has deteriorated since last year because of the drought, prompting Finance Minister Pravin Gordhan last week to reduce his growth forecast for 2016 by almost half to 0.9 percent.
Agriculture contracted an annualized 14 percent in the final three months of last year and “we can see the pass-through to manufacturing,” Statistician General Pali Lehohla told reporters on Tuesday in Pretoria, the capital. The decline is “a big number. The drought has an impact both in terms of employment and industrial output,” he said.
Growth in gross domestic product eased from 0.7 percent in the third quarter, the statistics office said in a report. The median estimate of 18 analysts surveyed by Bloomberg was for GDP to expand 0.9 percent. The economy grew 1.3 percent for the whole of last year.
Manufacturing, which makes up about 13 percent of the economy, contracted for three of the four quarters in 2015, declining an annualized 2.6 percent in the final three months of last year. Mining came out of recession in the fourth quarter, expanding 1.5 percent, mainly due to a recovery in electricity generation, according to the statistics agency.
The growth slowdown has contributed to rising government debt, leading credit-rating companies including Standard & Poor’s to downgrade the nation’s debt close to junk. The central bank, International Monetary Fund and World Bank all forecast growth of less than 1 percent for this year.
“With all expectations that 2016 will be weaker still, this signals decelerating growth momentum in South Africa for three consecutive years, highlighting some of the long-standing concerns of the ratings agencies,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in a note to clients.
South Africa needs annual expansion of 7.2 percent from 2018 to achieve the government’s goals of reducing the jobless rate to 6 percent by 2030, the World Bank said last month. The unemployment rate was 24.5 percent in the fourth quarter.
The rand rose with other emerging markets on Tuesday, gaining 1.1 percent to 15.6960 against the dollar as of 1:45 p.m. in Johannesburg and paring its decline in the past three months to 8 percent.
A weakening economy comes at the same time that food costs are soaring, adding to pressure on inflation. Consumer prices rose 6.2 percent in January, exceeding the central bank’s 3 percent to 6 percent target band.
“The Reserve Bank’s policy dilemma will be more challenging as inflation is likely to go up as economic growth continues to slow down,” Jeffrey Schultz, an economist at BNP Paribas Securities South Africa, said by phone on Tuesday. “We will see further interest-rate hikes from the central bank this year, but they are likely to be modest in trajectory and staggered in nature.”
The bank raised the repurchase rate by 50 basis points to 6.75 percent on Jan. 28. Deputy Governor Kuben Naidoo said on Feb. 19 that it would be “short-sighted of the Reserve Bank to overlook inflation and consider only short-term economic growth in its decision making.”