GDP growth improves, but not for long

After a rise in economic growth, economists warn the next quarter will be less impressive.

A woman walks past a stock exchange board. Picture: AFP

JOHANNESBURG - South Africa's economic growth has accelerated at a solid but slower-than-expected pace in the second quarter, largely driven by manufacturing growth.

On Tuesday, Statistics South Africa (Stats SA) said the Gross Domestic Product (GDP) had expanded 3 percent quarter-on-quarter in April to June, the highest gain for a year.

But it undershot economists' expectations of 3.3 percent and was largely due to a one-off bounce from the manufacturing sector, which grew 11.5 percent in the second quarter on a recovery in base metals.

The growth number left the rand hovering near the four-year lows it experienced last week over the strike in car production and a threatened walkout in gold mines.

Economists were downbeat in their reaction to the announcement.

"The pick-up in growth shouldn't detract from the fact that the economic outlook remains lacklustre. What's more, the fresh sell-off in the rand leaves the Reserve Bank with no room to loosen monetary policy," Capital Economics said in a note.

Manufacturing is the second biggest sector in South Africa's economy after finance, real estate and business services.

The industry's expansion in the second quarter was the highest since the first quarter of 2011.

But third quarter growth is expected to take a hit from the strike that started last week by about 30,000 autoworkers.

The sector accounts for about 6 percent of GDP and the walk-out is costing the economy an estimated R600 million a day.

The mining sector, which contracted 5.6 percent in the second quarter from the first, is bracing for strikes at gold producers, which could cost the economy over $35 million a day in lost output, based on current spot prices of the metal.

Mining strikes were cited by major international credit ratings agencies in the past year as a factor in lowering their sovereign ratings and have been a headache for President Jacob Zuma's ANC government, which faces elections next year.

UNCOMPETITIVE ECONOMY

Despite being Africa's biggest economy, South Africa remains in a tight spot in terms of employment.

The country has millions of unskilled workers with nearly 40 percent of the population living on less than R50 a day and half of adults out of work.

Employers blame an uncompetitive, low-skill, high-wage economy with restrictive labour laws for keeping unemployment high. Since 2000, real after-inflation wages in South Africa have risen 53 percent, while productivity fell by 41 percent.

The Reserve Bank has warned that ending the current round of strikes with settlements above inflation, which it estimates to average 5.9 percent this year, poses additional risks and could stoke inflation.

Economists said the GDP data leaves the bank little room to cut interest rates when its Monetary Policy Committee meets next month.

Inflation breached the ceiling of the bank's 3-6 percent target band last week and separate data has indicated that a credit-fuelled buying spree is coming to an end, dimming growth prospects.

"I don't think they [reserve bank officials] will be fooled into believing that suddenly the South African economy is growing at 3 percent," said Jeff Gable, an economist at Absa Capital.