26 February 2013

South Africa Posts 2.5 Percent Growth in 2012

South Africa's economy posted moderate growth of 2.5% in 2012, down from 3.5% in 2011, Statistics SA reported on Tuesday, with gross domestic product (GDP) growth up from 1.2% in the third quarter to a stronger than expected 2.1% in the fourth quarter.

Contributors, constraints

The main contributors to the quarter-on-quarter increase were manufacturing (0.8%), finance, real estate and business services (0.6%) and general government services (0.4%).

The growth in manufacturing was led by strong growth in the production of petroleum and basic iron and steel, while the growth in finance, real estate and business services was due to increased activity at the country's commercial banks.

Mining and quarrying recorded a negative contribution of 0.5% for the quarter, while the contributions made by the electricity, gas and water industry as well as the construction industry were insignificant.

"The steadier albeit bland performance was mainly due to higher production by the agriculture and manufacturing sectors, while the slump in mining production continued as the wildcat strikes persisted well into the final quarter," Nedbank economists commented on Thursday.

"Most of the other sectors produced mixed results, but growth rates remained generally modest."

Forecast for 2013

Nedbank expects much of the same in 2013, with strain on South Africa's mining and manufacturing sectors most probably set to continue.

In January, the Reserve Bank cut the forecast for economic growth this year from 2.9% to 2.6%.

"Producers and exporters face another difficult year as the recession in the eurozone is forecast to continue, and local operating conditions are expected to remain challenging given high electricity costs, strained labour relations, fading productivity and inadequate economic infrastructure," Nedbank said.

"These constraints are generally expected to offset most of the benefits of a weaker rand.

The bank noted that the pace of local economic activity remained modest and unbalanced in the fourth quarter.

"Although domestic spending was moderated, it continued to outpace production, despite improvements in agriculture and manufacturing output. This suggests that the underlying pressure on the current account and the rand is unlikely to ease in the near future.

"Given the circumstances, the neutral policy stance remains the best option for the [Reserve Bank's monetary policy committee], buying some time for a fragile economy to recover more convincingly."

The government has previously said that the economy needs to grow at a rate of at least 5% a year if the country is to make a serious dent in the fight against unemployment.

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