Economy shrinks unexpectedly by 1‚3 percent quarter-on-quarter

Economy shrinks unexpectedly by 1‚3 percent quarter-on-quarter

Second quarter real gross domestic product (GDP) figures came out much weaker than the markets expected‚ and with the rand’s recent sharp decline against the US dollar‚ South Africa could expect another 25 basis point rate hike in September‚ the Nedbank Economic Unit said on Tuesday.

“The economy shrunk by a seasonally adjusted annualised 1‚3% quarter-on-quarter‚ down from an already modest 1‚3% in the first quarter and far below the consensus market forecast of 0‚5 % quarter-on-quarter growth.”

The unit said current economic conditions were deteriorating and the risk to the outlook remained on the downside.

“Despite this‚ the (Reserve Bank’s) Monetary Policy Committee is likely to focus more on the upside risk to inflation emanating from the rand’s sharp slide in recent weeks and the threat of even further weakness in the months ahead given the combination of increased global risk aversion and the expected rise in US interest rates before year-end.

“The chances of faster and steeper rate hikes have increased with the rand’s sharp depreciation. We still expect a weak economy to limit the pace of monetary tightening to another 25 basis point in September‚ followed by more aggressive hikes throughout 2016.”

Over the second quarter‚ the drag came from sharp declines in value added by agriculture (17‚4%) ‚ mining (-6‚8%)‚ manufacturing (-6‚3%)‚ electricity‚ gas and water (-2‚9%)‚ as well as wholesale‚ retail and motor trade‚ catering and accommodation (-0‚4%).

“Apart from general government services and personal services‚ the pace of activity in most other sectors slowed further‚” the unit said.

“The seasonally adjusted real annualised value added by the primary and secondary sectors recorded decreases of 9‚3% and 4‚7% respectively‚ while the tertiary sector recorded an increase of 1‚1% during the second quarter of 2015‚” Statistic SA said.

The unadjusted real GDP at market prices for the second quarter of 2015 had increased by 1‚2% compared with the second quarter of 2014.

“The estimate of GDP for the first six months of 2015 increased by 1‚6% compared with the corresponding period in 2014‚” Stats SA said.

Nedbank said that over the year‚ the economy had grown by a slower pace of 1‚2%‚ down from 2‚1% in the first quarter. “The slightly firmer picture mainly reflects the low strike-inflicted base of last year.

“The economic outlook remains relatively weak. Apart from the adverse effects of electricity supply shortages and fading competitiveness‚ the world economy has also become less supportive.

“The global stock market rout‚ uncertainty around the pace of US monetary policy normalisation‚ risk-averse global investors‚ signs of a steeper deceleration in Chinese economic activity and the continual slide in global commodity prices are likely to hurt domestic confidence‚ undermine capital expenditure‚ aggravate unemployment‚ add to inflation‚ push interest rates higher and limit economic growth.

“We still forecast GDP growth of 2% in 2015 as a whole‚ followed by a slower 1‚8% in 2016.”

Source: RDM News Wire.

South Africa Today – South Africa News