SA skirts recession but remains in doldrums

South Arica narrowly escaped a recession with 0.7% growth in the third quarter but a leading indicator shows there is very little to cheer about.

Although fewer power outages helped manufacturing, the slow pace of growth was blamed on persistent weakness in global commodity prices, lower demand, a drought and a slowdown in China. The same factors threaten growth next year.

In the second quarter, the economy contracted 1.3% largely due to poor performance in the agriculture, manufacturing and mining sectors.

Now economists say SA will be lucky to grow at the 1.4% forecast for this year by the Reserve Bank.

The Treasury forecasts 1.5%.

Weak economic growth will be among the key factors that two ratings agencies — Fitch and Standard & Poor’s — will take into account in their next reviews of SA’s rating.

Weak growth and large budget deficits prompted the agencies to downgrade SA’s credit ratings in the past.

The figures released by Statistics SA showed financial and business services, trade and a rebound in manufacturing production supported growth, while there were again sharp declines in agriculture and mining.

Mining is taking strain from lower Chinese demand and weak global commodity prices. The effects of drought are becoming more apparent in the sharp declines in agricultural output.

Droughts are often more than just single-year impact events and if below-average rainfalls are recorded into the first quarter of next year, the effect on the economy will be more widespread, said Credit Guarantee Insurance economist Luke Doig.

The Bank’s leading business cycle indicator fell for the fifth consecutive month in September to 92.4 points — suggesting that economic growth in coming months will be muted.

The indicator fell 5.5% in September this year compared with last year — the worst contraction since 2009 when SA was in recession — an indication of how sluggish economic growth is likely to be.

The growth numbers are little comfort for policy makers who are counting on SA growing more than 5% per year to at least halve unemployment by 2020.

Source: Business Day Live

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