In Q2 2010, South Africa’s GDP rose by a disappointing 3.2%q/q on a seasonally adjusted and annualised basis. This compares with an increase of 4.6%q/q in Q1 2010. SA’s Q2 2010 growth rate was below market expectations for a rise of 3.6%q/q (Bloomberg) or 3.9%q/q (STANLIB).
Interestingly, the detailed breakdown of the Q2 2010 GDP performance reveals a slightly more encouraging performance than what the headline growth rate would suggest. This is because most of the key sectors in the economy recorded solid growth performance including manufacturing, retail, transport, communication, and finance.
The disappointment in the Q2 2010 GDP growth performance was mostly due to a sharp fall-off in mining activity. Mining output fell by a dramatic 20.8%q/q, annualised in Q2 2010 due to a combination of strike activity and mine related stoppages. This subtracted a substantial 1.1% from the quarterly growth performance. The rest of the sectors either made no real contribution to growth in Q2 2010 (for example the construction sector) or made a positive contribution, for example manufacturing (1.1%), trade (0.7%), and finance (0.6%).
Although the GDP performance was somewhat disappointing, it still suggests that SA has convincingly exited the recession and is experiencing a relatively broad-based economic recovery. The World Soccer Cup did boost the economy but perhaps not as much as was anticipated at the start of the year.
There is a legitimate concern that economic activity could slump further in the second half of the year, especially considering that many investment projects, related to the World Cup have stopped. Our expectation is that SA’s economic growth during 2010 will be ‘front-loaded’ in the sense that the growth rate for the first half of the year is likely to be stronger than the second half; that is the norm when hosting a large sporting event such as the World Soccer Cup. However, the fall-off in activity in the second half of 2010 is unlikely to be all that dramatic considering that SA interest rates are expected to at least remain at 30-year lows, inflation is well under control, household disposable income is on the rise, and credit demand should systematically rise.
For 2009 as a whole, SA GDP shrank by a real 1.8%, compared with growth of 3.7% in 2008. For 2010, we forecast GDP growth of around 2.9% (revised down modestly from a previous estimate of 3.1%), rising to 3.5% in 2011.
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