South Africa’s economy grew by a lower-than-expected 2.6 percent in the third quarter of 2010, highlighting the fragility of its recovery and leaving the door open for another interest rate cut.
The data comes less than a week after the central bank painted a gloomy picture of the economy, saying the outlook remained subdued.
Bond yields fell after the data, with the 2015 bond hitting a session low of 7.02 percent, from 7.07 percent prior to the release.
The South African Reserve Bank cut interest rates by 50 basis points last week, adding to 600 basis points of cuts since December 2008, to help boost the economy.
Statistics South Africa said on Tuesday GDP expansion slowed from a revised seasonally adjusted and annualised growth of 2.8 percent in Q2, way below forecasts of a 3.2 percent rise in a Reuters poll.
The economy expanded by 2.6 percent year-on-year unadjusted, compared to a revised 3.1 percent in the second quarter of 2010, also below forecasts of 3.5 percent expansion.
“Overall, the number vindicates the Reserve Bank’s latest interest rate decision,” said Elna Moolman, economist at Renaissance BJM.
“We also maintain our view that as long as economic growth remains below potential, it keeps a possibility of further monetary easing alive, although it is not our base-line view that they will cut again,” she added. The central bank has put potential sustainable growth at 4.5 percent.
The statistics agency also tweaked its 2009 figures to reflect a contraction of 1.7 percent from a previous estimate of 1.8 percent contraction. The economy grew 3.6 percent in 2008.
South Africa exited its first recession since 1992 in the third quarter of 2009, but is still struggling to get back to full steam, with sluggish demand weighing on key sectors such as manufacturing.
The sector contracted 5.0 percent in the quarter versus the previous three months, with strikes a factor in the lacklustre performance, compared to a downwardly revised 5.0 percent expansion in the second quarter.
MANUFACTURING A WORRY
Manufacturing is the second biggest contributor to economic growth and is crucial for creating jobs in a country where more than a quarter of workers are unemployed.
In October the Treasury raised its 2010 GDP growth estimate to 3.0 percent from 2.3 percent, but said this was still not nearly high enough to lead to major cuts in unemployment, which stood at 25.3 percent in the third quarter.
“The figures are disappointing. They are below market expectations — but even more so that the previous quarter has been revised downwards. One did not expect that,” said Kabelo Masike, Treasury economist at Eskom.
“The pain of the manufacturing sector will once again refocus attention on the external value of the rand.”
The rand has gained over 26 percent against the dollar since the beginning of 2009, increasing calls for the government to take measures to weaken the currency.
The central bank has stepped up its foreign exchange accumulation, but it and the government have repeatedly said they do not target an exchange rate level.
Pretoria Portland Cement, southern Africa’s biggest cement maker, this month underscored the bleak outlook for construction in Africa’s top economy.
“We simply do not know what to make of the construction market, which is quite depressed,” chief executive Paul Stuiver told Reuters.
. The economy grew 3.6 percent in 2008
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