SA mines push economic growth

A weaker rand offered some relief to the production side of the economy. Analysts forecast that the economy will grow above 4% for the full year, buoyed by the expected continued growth in the mining and manufacturing sectors.

However, gross domestic product (GDP) growth, which has been driven mainly by an environment of low interest rates and strong domestic spending, is expected to slow from current levels, following two 50 basis points interest rate hikes by the Reserve Bank so far this year.

Markets are discounting the probability of two more rate hikes before the end of this year, which are likely to further curb consumers’ exuberance.

Last year the economy grew at 4,9%, its highest level in more than 20 years.

The seasonally adjusted annualised rate of 4,9% in the second quarter was up from a revised 4% in the first quarter of this year, Statistics SA said yesterday.

A Reuters poll of 15 local economists had forecast growth of 4,3% quarter on quarter.

“Subsequent interest rate tightening will probably have some detrimental impact on the second half of the year’s performance but we remain confident that a full-year outcome slightly above 4% is attainable,” said Vunani Securities chief economist Johan Rossouw.

The combination of higher interest rates and a weaker rand was likely to make GDP growth more dependent on growth in the mining and manufacturing sectors in the second half of the year, JPMorgan economist Marisa Fassler said.

But government’s planned infrastructure programme would also provide support for growth in sectors such as construction, transport and communication over the medium term, she said.

Earlier this year, government announced infrastructure spending plans of about R370bn over the next three years.

“A rotation in the sources of economic growth should be welcomed by policy makers, given concerns that strong domestic demand growth has contributed to the sharply widening current account deficit,” Fassler said.

In the first six months of the year, the economy grew 3,8%.

Growth in the second quarter was buoyed mainly by a revival in the manufacturing sector, the economy’s largest after finance, real estate and business services.

Manufacturing, which contributes about 16% to GDP, was aided by a weaker rand, which helped increase manufacturers’ competitiveness.

The sector was up by an annualised 6,1% in the quarter, following a rise of 4,3% in the first quarter.

The biggest contributors to growth in the second quarter were finance, which added 1,7% to growth, and manufacturing (1%).

The agriculture sector continued its contraction, falling 33% (-14%) in the second quarter and subtracting 0,7% from overall GDP growth.

This was mainly because of the lower production of field crops, possibly a result of the low agricultural prices experienced last year.

This should prompt farmers to plant less during the current season, said Efficient Group economist Nico Kelder.

It was expected that the recovery in prices would prompt farmers to increase their production in the coming season.

The mining sector had reported its first expansion in production (3,1%) after three quarters of contraction (-4,4% in the first quarter of this year), he said. ‘ Business Day.

August 2006
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