A real shocker as gross domestic product tumbles
Earlier this year a certain government minister told the country that Eskom’s pathetic January power delivery would not impact on the country’s growth. Even finance minister Trevor Manuel supported this story, steadfastly sticking to government’s 4% growth target. But economic analysts were closer to the mark. Polled a couple of weeks before Statistics SA’s Tuesday release they predicted Q1 2008 GPD growth at 2.5%.
The final number couldn’t even live up to these ‘tempered’ expectations. When all the fanfare was over we were left wondering what growth of 2.1% meant for South Africa’s hopes and dreams! Incidentally this is the worst quarter on record since Q3 2001!
Government needs 6% to meet its ambitious targets
The first observation we’d like to make is that government needs consistent GDP growth of 6% or better to have any hope of meeting its 2014 social targets. There is no other way the country will halve unemployment and poverty over the next eight years. And although economists maintain that government’s 2014 targets are nothing but a pipe-dream it seems unlikely the targets will be softened. What will happen when the targets are missed?
We’ve already seen alarming economic undertones in the recent wave of xenophobic attacks in and around the country’s informal settlements. And although the country’s porous border has exacerbated the problem there is little doubt that the gap between the ‘rich and ‘poor’ has fuelled the fire. If poverty and unemployment are not addressed we could see this type of violence escalate… And the country can ill afford such outbreaks.
Construction gets the gold star
A closer look at the latest GDP data reveals some interesting developments. Let’s begin with a look at the poorest performing segments of the economy. There’s no question that mining (down 22.1%), electricity, gas & water (down 6.2%) and manufacturing (down 1%) dragged the overall economy down. And we’re 100% certain the major reason for these declines was the forced electricity ‘rationing’ that dominated the first month of 2008. Without constant electricity supply mining and manufacturing simply cannot perform... Luckily mining carries a lower weight in the overall GDP calculation than it did a decade ago. Its current 5.4% weighting prevented the GDP number from falling even further.
The shining performances in the latest numbers came from construction (up 14.9%) and agriculture (up 12.5%). We all know why construction is performing so well. There is an abundance of massive infrastructure projects underway at the moment which will keep the country’s construction giants busy for years to come. We have stadiums for the Soccer World Cup, Gautrain and a number of huge social development projects underway. Agriculture presents a bit of a modern-day ‘catch 22’ because local consumers are likely to pay higher food prices despite the agricultures sector being in good health. Farmers will be able to achieve ‘international’ prices for their crops due to global shortages.
The middle of the road performances came from finance & real estate (up 4.9%), government services (4.5% higher), personal services (up 3.9%) and transport & communications (up 3.5%). These numbers support a general robustness in the economy and prompted some economists to say that Mboweni now has the motivation he needs to push interest rates higher, because GDP has been pulled down by power supply problems rather than a severe contraction in consumer backed sectors.
It might be time to build that ‘bomb’ shelter
And their observations couldn’t have been more correct. Yesterday, online financial news provider Fin24 carried a frightening article on the Reserve Bank’s next step. We’re not sure if they were trying to scare the public; but they suggest that governor Tito Mboweni and his MPC cohorts might hike interest rate by 200 basis points when they meet in June. That would take the prime lending rate from 15% to 17% and certainly prove a death blow to many consumers.
FAnews Online will be surprised if the governor takes such a decisive step. It’s more likely that he’s preparing us for a 1% increase... If he can scare us enough now with the threat of a 2% hike we’ll be relieved (rather than outraged) with the 1% he has planned.
Editor’s thoughts:
Although the domestic economy is powering ahead on the back of construction and higher resources prices consumers are having a tough time of it. We don’t seem able to escape the ravages of inflation as food, petrol prices and surging interest rates decimate our disposable income. Will you survive if interest rates go 2% higher in June this year? Add your comments below, or send them to [email protected]
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