23.11.201007:26:00UTC+00South Africa's Economic Growth Moderates In Q3

South Africa's economic growth slowed unexpectedly in the third quarter led by a fall in manufacturing activity, latest figures showed Tuesday. Growth eased for a second straight quarter.

The seasonally adjusted gross domestic product grew at an annualized rate of 2.6% sequentially in the third quarter, slowing from a downwardly revised 2.8% expansion in the second quarter. The rate of expansion was much weaker than the 3.3% expected by economists.

Economic activity in the manufacturing sector declined 5% during the three-month ending September, partly due to lower production in the motor vehicle, parts and accessories and other transport equipment, the statistical office said.

Mining and quarrying industry contributed 1.5 percentage points to the overall GDP growth based on its 28.1% gain. Meanwhile, the wholesale, retail, motor trade and accommodation industry grew 3.3% on a quarterly basis, adding 0.4 of a percentage point.

Annually, the economy expanded 2.6%, slower than the 3.1% growth in the previous quarter. Year-on-year, mining and quarrying industry grew 6.5% and manufacturing activity expanded 4.4%. The real GDP at market prices increased 2.5% for the first nine months of this year compared to the same period last year.

Survey results released by the Bureau of Economic Research and Rand Merchant Bank today showed that South African business confidence declined during fourth quarter due to sharp deterioration in sentiment among new vehicle traders.

The business sentiment index fell to 44 in the fourth quarter from 47 in the third quarter. Confidence among new vehicle traders fell sharply by 28 index points to 51 during the quarter.

Figures released by the National Association of Automobile Manufacturers of South Africa or NAAMSA last month showed a remarkable slowdown in new vehicle sales following industrial action. However, sales recovered notably in October.

The survey showed that more than four out of ten senior managers in the manufacturing sector, building sector, retail trade, wholesale trade and new vehicle trade were satisfied with prevailing business conditions in the fourth quarter.

The fourth quarter decline in the RMB/BER BCI is not as bad as it seems, according to RMB chief economist Ettienne Le Roux. The index may reverse this quarter's small decline to continue on an upward path, taking the index close to the 50 mark next year, the economist said. The level was consistent with an expected overall growth of around 3% this year and in 2011.

The central bank projects the economy to grow 2.8% this year and 3.3% and 3.6% in 2011 and 2012 respectively. Governor Gill Marcus believes that the outlook remains subdued, while below-trend growth is expected to persist.

Last week, South Africa Reserve Bank decided to lower its key policy rate to lend further support to the economy, weakened by the recent downturn in the manufacturing sector. The benchmark repurchase rate was reduced by 50 basis points to 5.5%, the lowest on record.

Marcus was of the view that there is room for more stimulus, given the weakness in the supply side of the economy, however, the scope for further rate cut is limited given the signs of recovery in household consumption expenditure and credit extension.

South Africa's manufacturing output growth eased in September to the lowest level since February, according to official figures. Furthermore, the latest purchasing managers' survey by the Bureau for Economic Research and Kagiso Securities pointed to a contraction in manufacturing sector in October.

Presenting the 2011 budget proposals last month, South Africa's Finance Minister Pravin Gordhan raised the economic growth forecast to 3% this year from 2.3% projected in February. He expects economy to grow 3.5% in 2011, faster than the earlier estimate of 3.2%. In 2013, the growth rate is expected to be 4.4%.

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