GDP growth in the first quarter 2002 of 2.2% q-o-q
(seasonally adjusted and annualised) and 1.9% y-o-y (seasonally adjusted) was below market
expectations, which were optimistic following first quarter export growth and extended
pre-emptive buying as a result of the depreciation of the Rand late last year. The
seasonally adjusted real GDP figures for 2001 at market prices showed that growth in the
fourth quarter increased at an annualised q-o-q rate of 2.5%, compared to 1.5% for the
first quarter, 1.8% for the second quarter and 1.2% for the third quarter. Domestic growth
in the first three quarters of 2001 was modest, partly attributable to the decline in
exports experienced as a result of weak global economic growth. Fourth quarter growth
picked up as an indirect result of the depreciation of the Rand. The secondary and
tertiary sectors of the economy showed healthy signs of economic activity whereas real
value added by the primary sectors fell during 2001, mainly due to a decline in
Agricultural production. The growth rate for 2001 as a whole was 2.2%, significantly lower
than the 3.4% growth in the year 2000. Increasing capital intensity and growth in capital
intensive industries, due to a shortage of skilled labour and an inflexible labour market
presents an enormous structural hurdle in South Africa's growth path, giving rise to
jobless growth.
The main contributors to growth in 2001 were Finance, real estate and
business services (5.9%), Manufacturing (5.0%), Wholesale & retail trade (4.3%) and
Transport and communications (4.9%). Manufacturing, which contributes 18.4% of GDP,
experienced a significant recovery. Fourth quarter growth was 5.6% up from -1.1% in the
third quarter due to pre-emptive buying and import-substituting domestic demand. This gave
a Manufacturing growth rate for the year of 2.9%. In the first quarter 2002, these
sectors, although showing a decline in growth rates, continued to be the main drivers of
GDP growth, except for Wholesale & retail trade which experienced significantly weaker
growth of 1.8% q-o-q compared to 4.0% q-o-q in the fourth quarter of 2001. For the year
2001, disappointing sectoral growth was recorded in the Agriculture sector (-3.2%) and
General government services sector (-0.8%) with both sectors recording negative q-o-q
annualised growth rates for all four quarters. Growth in Electricity (-0.7% for 2001) was
equally discouraging. Seasonally adjusted q-o-q GDP growth for 2001 excluding the
Agriculture sector was more robust with increases in annualised rates of 2.0%, 2.0%, 1.3%
and 2.8% in the first, second, third and fourth quarters.
GDP growth is expected to be stronger in 2002 than in 2001, rising to
2.7% and strengthening further to 3.2% in the first half of 2003. Investment expenditure
will be encouraged indirectly by the appreciation of the Rand since the beginning of the
year and its expected strength over the course of 2002, as capital imports decrease in
price and inflationary pressures dissipate. Investor and consumer confidence has been
influenced by the positive psychological effects of the impressive recovery of the Rand
and the strengthening gold price. Sacob's business confidence index improved from 101.3 in
April to 107 points in May, 3.4 index points higher than in May 2001 and just below the
record 109 level of August 200, before the index began its downward path. Growth in
manufacturing will continue to benefit from the depreciation of the Rand, and has
contributed to optimistic expectations for 2002. The 2% increase in interest rates earlier
this year followed by the further 1% increase on 13 June will however make the financing
of new investment more expensive as well as reducing consumer demand. Fortunately, the
financial stringency of economic management in South Africa will obviate a severe
financial crisis in the country. The second round inflationary effects of the Rand
depreciation are expected to have worked their way through the system by the second
quarter of 2003 allowing interest rates to decline, to the benefit of investment and
disposable income levels. This will contribute to a steady increase in economic growth.
Growth for 2003 as a whole is expected to rise to 3.3-4%. A countering factor of the
stronger Rand value will be the effect on exports, although the extent to which the
currency is undervalued means that this will be marginal. Even at R10 to the dollar, SA
exports will remain competitive. Global economic recovery is likely to play a more
significant role in terms of economic growth than the recovery of the Rand over the next
two years. Growth projections for the next few years fall far short of the 5-6% level
needed to have a significantly positive effect on unemployment alleviation. Such higher
growth rates require structural changes in the SA economy and consequent improvement in
investor sentiment.
