● Reserve Bank warns of first-quarter contraction

THE SA Reserve Bank (Sarb) warned yesterday that the country’s economy may have contracted in the first quarter on the back of poor performance in the mining and manufacturing sectors.

Sarb governor Lesetja Kganyago said available data from manufacturing and mining suggested a contraction and not renewed business and consumer optimism.

However, Kganyago said the bank’s growth forecast for the year remained unchanged at 1.7 percent with an expected lift from 1.5 percent to 1.7 percent next year.

“The domestic growth outlook remains challenging, although growth is still expected to outperform recent year outcomes,” Kganyago said.

“This is despite the possibility of a contraction in the gross domestic product in the first quarter of this year.”

Earlier this month, Statistics South Africa said that mining fell 3.4 percent year-on-year in the first quarter and manufacturing eased 1.6 percent while retail sales fell 0.7 percent following a 2.2 percent rise in the previous period.

Mining and manufacturing are the biggest contributors to the growth domestic product (GDP).

Old Mutual Multi-Managers chief investment strategist Dave Mohr said quarterly contractions in wholesale sales, buildings completed, mining and manufacturing posed a threat to GDP growth.

“This could certainly dent the ‘New Dawn’ narrative, but should not be blown out of proportion,” Mohr said.

“Year-on-year growth should accelerate and the outlook for the remainder of the year looks fairly bright due to a combination of low inflation supporting spending and a healthy global economy that should support our export and tourism sectors.”

The economy grew at an annualised 3.1 percent on quarter in the last quarter of 2017, mainly due to a robust gain in agriculture and a faster increase in manufacturing.

Sarb yesterday unanimously decided to leave their key policy rate unchanged at 6.50 percent.

Kganyago, who struck a markedly hawkish tone, said inflation had bottomed out, and that price growth would accelerate as a result of higher fuel prices, the lagged effect of tax changes, and above-productivity pay increases.

Early stages

The central bank said its Quarterly Projection Model reflects one increase of 25 basis points during the final quarter of this year and a similar increase in mid-2019. Two further increases are indicated in 2020.

North West University School of Business economist Raymond Parson said the current economic recovery is still in its early stages.

“There is also still evidence of slack in the economy and uncertainty about the real impact of recent tax increases on consumer spending,” Parsons said.

“A period of stable interest rates is, therefore, necessary for as long as possible to avoid choking off the incipient economic recovery.”

The stats agency is expected to release first-quarter growth figures early in June.