Business Day (Johannesburg)

South Africa: Recovery in Sight As Recession Tapers Off

Johannesburg — THE recession extended into the second quarter, latest gross domestic product (GDP) figures showed yesterday, but the economy is not shrinking as fast as before, suggesting that recovery is in sight, even though it will be slow.

The economy contracted at an annualised 3% in the second quarter, compared with the 6,4% decline in the first quarter, according to Statistics SA figures.

This is the first time since 1992 that SA has experienced three successive quarters of negative growth.

But when comparing this year's first half with that of last year, the economy is down only 2%. It is expected to stabilise next quarter, and move back into growth by the fourth quarter, making it unlikely that the full-year decline will be as bad as the 2% plus that more pessimistic economists had predicted.

"The worst is over," FNB economist Cees Bruggemans said yesterday. "There are no undue concerns about a lingering or a deeper recession.

"All we are arguing about is the shape of the cyclical turnaround."

Econometrix economist Azar Jammine said that if the volatile agriculture and mining sectors were excluded the economy actually improved by as much as four percentage points to negative 2,4% in the second quarter from negative 6,2% in the first quarter.

Construction, government and personal services (such as healthcare) carried what growth there was, and export-oriented sectors of mining and manufacturing did better than in the previous quarter.

But the big disappointment was the retail and wholesale trade sector. It did far worse than expected with its decline accelerating to 4,5% in the second quarter from 2,5% in the first.

"That tells you the consumer is not in good shape," said Sanlam group economist Jac Laubscher. Despite 500 basis points in interest rate cuts in the past nine months, job losses were having an effect, the household debt ratio remained high and the figures suggested consumers were finding it difficult to bring down their debt.

The GDP figures confirmed SA still lagged some Asian countries, which have reported strong second quarter rebounds, as well as France and Germany, which showed slight growth in the second quarter.

Laubscher said one reason for the lag was that those economies were benefiting largely from higher exports of manufactured goods. "That is not our strong point."

The manufacturing sector contracted again in the second quarter, but at 10,9% against the first quarter's steep 22%. The financial sector, the economy's largest, also contracted again, at about 2,5%.

Mining, however, expanded 5,5% after the first quarter's 32% crash as it started to benefit from better commodity prices.

Agriculture was down 17%, off a high base; without it, the economy would have contracted at only 1,9% in the second quarter.

Growth is expected to pick up later this year as the global recovery gains pace and the monetary and fiscal stimulus the government put in place work their way through the system. Interest- rate cuts take six to 18 months to have their full effect on demand.

When the Reserve Bank's monetary policy surprised the market with another interest- rate cut of 50 basis points last week, it was thought the committee might have had sight of the latest GDP figures from Stats SA and might have been responding to the economic weakness these indicated.

However, Stats SA's head of economic statistics, Rashad Cassim, said yesterday that this was not the case.

There was a Reserve Bank team that works on national accounts with Stats SA, but it has no link to the monetary policy committee, and was not supposed to discuss the figures before they were released to the market.

The committee would have relied on the bank's own forecasting models, Cassim said.

The rand was at R8,06/, down from R8,05/ before the GDP report and up from R8,16/ on Monday. With Bloomberg

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