Second-quarter growth expected to be up

THE ECONOMIC WEEK AHEAD: Ntsakisi Maswanganyi

GROWTH in the local economy will have rebounded in the second quarter, economists expect Statistics SA figures out tomorrow to show, reflecting to some extent low base effects and a low number of disruptions in key sectors such as manufacturing during the period.

A BDlive median consensus survey of 10 economists forecast gross domestic product (GDP) growth of 3.3% in the second quarter, seasonally adjusted and annualised, from a disappointing 0.9% expansion in the first quarter.

GDP growth disappointed in the first quarter, recording a much weaker than expected 0.9% seasonally adjusted and annualised decline following a disappointing performance by manufacturing.

A fire and closures due to maintenance negatively affected production at some of SA’s main factories, causing manufacturing to contribute negatively to GDP growth in the three months to March.

Manufacturing is, however, now expected to have contributed positively to GDP growth in the second quarter. “This stronger (GDP) outcome in Q2.13 (the second quarter of this year) will be led by a recovery in manufacturing sector activity … the retail sector also registered stronger growth,” said Investec economist Kamilla Kaplan.

Manufacturing accounts

for some 15% of GDP, while retail falls under an industry that accounts for about 12% of GDP.

Ms Kaplan said the pickup in both the manufacturing and retail sectors should be “concomitant” with increased electricity consumption and transport activity.

Much of the GDP growth in the second quarter would, however, be “statistical” in nature rather than a reflection of a fundamental and sustained increase in economic activity, she said.

Despite forecasts for GDP growth to have rebounded in the second quarter, strikes due to start this week across various sectors including construction, and possibly in the gold mining sector later, threaten to set SA back. Analysts have warned that prolonged strikes could put growth under increased pressure, resulting in it being lower than most forecasts of between 2% and 2.4% this year.

A wave of strikes in the mining sector in the second half of last year disrupted output and negatively affected economic growth.

“It is something we have seen before, particularly in the mining sector. Strikes and mine shutdowns weigh on output. There are also secondary effects to that in terms of sectors related to mining such as transport, electricity and manufacturing,” said London-based Capital Economics economist Shilan Shal.

Other than the GDP data, markets will also be interested in the trade balance and producer inflation, also due out this week.

Statistics SA will release the producer price indices for the various sectors on Thursday. Economists expect the producer price index (PPI) for final manufactured goods — considered the headline PPI — to have increased further last month.

“Despite tame trends in global food price inflation, the passthrough from a weaker rand poses the key obstacle to a moderation in domestic food prices,” said Standard Bank economists Shireen Darmalingam and Sibusiso Gumbi.

Last week, the rand depreciated to R10.44/$ amid concerns that the Federal Reserve will cut its stimulus programmes from next month.

The trade balance is expected to have recorded yet another deficit from the R7.7bn shortfall in June, reflecting the continued strong growth in imports and moderate expansion in exports. A deficit of R9bn to R11bn is expected.