26 August 2014
The improvement in real GDP from an outright decline of 0.6% annualised in the first quarter of 2014 to a positive advance of 0.6% annualised in the second quarter, mainly reflects the fact that both mining and manufacturing production fell at slower rates in the quarter – as opposed to any meaningful improvement in underlying growth dynamics. Apart from agriculture, construction, transport, storage and communication, the softness in growth was broad-based among industries.
Meanwhile, the relatively soft Reserve Bank leading indicator for economic activity suggests that a meaningful acceleration in real economic activity is unlikely any time soon. Indeed, labour disputes must impact manufacturing production heavily early in the third quarter.
Looking ahead, hopes for an improvement in the level of real economic activity into 2015 are pinned on an expected improvement in real net exports, given the sharp fall in South Africa’s real effective exchange rate since its peak in late 2010. Provided income growth remains stable abroad, this should translate into better export performance.
By the same token, the weak currency has contributed to the current weakness evident in domestic demand. The near-term outlook for private sector fixed investment remains constrained by the relatively low rate of return on domestic fixed investment, while slow real income growth (partly reflecting a weak employment environment) continues to weigh household consumption expenditure.
Overall, amid labour disputes, soft profits growth, modest productivity outcomes and depressed terms of trade, the economy is likely to be constrained to growth of around 1.5% in 2014, and is likely to remain below its long-term potential in 2015.