South Africa GDP growth picks up in fourth quarter

Pedestrians cross a street in the financial district of Cape Town. South Africa’s gross domestic product increased by 3.8% in the fourth quarter of 2013 after expanding by 0.7% in the third quarter.

Reuters/Pretoria

South Africa’s economic growth quickened in the fourth quarter of last year but not enough to lift annual output, which languished below 2% as the continent’s powerhouse struggles to shake off the aftermath of a 2009 recession.

The data gives the government less room for manoeuvre in its efforts to slash unemployment from nearly 25%, one of the biggest headaches for President Jacob Zuma’s ruling ANC as it gears up for general elections called for May 7.

The weak growth also adds pressure on Finance Minister Pravin Gordhan who has to keep spending in check and rein in an unwieldy deficit, leaving him little room to offer stimulus in a budget due on Wednesday.

Gross domestic product increased by 3.8% quarter-on-quarter in the fourth quarter of 2013 after expanding by 0.7% in the third quarter, Statistics South Africa said yesterday.

On an unadjusted year-on-year basis, the economy grew by 2 % in the fourth quarter, compared with a revised 1.7% in the previous three months.

Economists polled by Reuters expected quarter-on-quarter growth of 3.4%, while the year-on-year rate was seen at 2.1%.

Stats SA attributed the quarterly rebound mainly to base effects, as the automotive sector recovered from strikes earlier in the year while gold output also improved.

But it was not enough to boost overall growth for 2013, which slowed to 1.9% from 2.5% the previous year.

This is a far cry from average growth levels of about 5% recorded in the five years before South Africa fell into a recession in 2009. “The consumer remains under some pressure, and we would expect an ongoing slowdown in 2014 given additional pressure from factors such as double-digit petrol price increases, higher than expected food inflation and the recent interest rate hike,” said Macquarie economist Elna Moolman. The South African Reserve Bank raised interest rates for the first time in nearly six years in January, in a bid to stem inflation pressures coming mainly from a sharp depreciation in the rand over the past year.

The short-term interest rate market is pricing in the chance of another 150 basis points of increases by the end of 2014. Inflation was at 5.8% on an annualised basis in January, from 5.4% a month earlier.

The currency fell more than 20% against the dollar in 2013, and has already lost nearly 3% of its value so far this year, although it clawed back some ground yesterday after the better-than-expected fourth quarter growth data.

Analysts expect a sharp slowdown in GDP growth for the first quarter of 2014, with a contraction likely in the mining sector due to renewed strike action which has hit some of the world’s largest platinum producers.

“The bigger picture is that the economy is still very weak,” said Shilan Shah, Africa economist at Capital Economics.

“What’s more, even though growth is set to remain lacklustre, (monetary) policy is likely to be tightened over the coming months.”