South Africa was likely to maintain its soft gross domestic product (GDP) growth over the next year, despite growth seen in the manufacturing; agriculture, forestry and fishing; and finance, real estate and business services categories, besides others, which drove the higher-than-expected quarterly and yearly economic growth.

The latest Statistics South Africa (Stats SA) quarterly GDP report, released last week, showed that the country’s GDP expanded by 2.5% in 2012, down from the 3.5% reported in the prior year, while the fourth-quarter gained traction with an annualised growth rate of 2.1%.

Banking group Nedbank commented that the “steadier, albeit bland” full-year GDP growth was mainly due to higher production by the agriculture and manufacturing sectors, as mining production slumped amid continued wildcat strikes into the final quarter.

The finance, real estate and business services sector maintained its lead by contributing the most percentage points to the yearly GDP growth with 0.7, despite a lower real growth rate of 3.3% during 2012, compared with the recorded 4% in 2011.

The manufacturing; wholesale, retail and motor trade, catering and accommodation; and general government services categories each contributed 0.4 percentage points to the full-year GDP growth.

The manufacturing sector reported real yearly growth of 2.4%, down from 3.6% in the prior year, while the wholesale, retail and motor trade, catering and accommodation; and general government services categories reported growth of 3.6% and 3.1% in 2012, compared with 4.5% and 3.9% respectively.

However, the mining and quarrying sector marred the overall growth for the year, contributing –0.2 percentage points. The sector also reported a contraction in growth after reporting –4% growth during 2012, compared with 0.3% in 2011.

“Most of the other sectors produced mixed results, but growth rates remained generally modest,” Nedbank noted.

The electricity, gas and water sector maintained a steady zero percentage point contribution, based on a –1.2% contraction in 2012 from a 1.1% expansion in 2011.

The construction and agriculture, forestry and fishing industries each added 0.1 percentage points, compared with zero contribution to growth in the prior two years.

In the period under review, the construction sector recorded a growth rate of 2.5% – a jump from the 0.5% reported in 2011 – while the agriculture, forestry and fishing sector recorded a turnaround, growing 2.3% during the year, compared with the prior year’s contraction of 0.1%.

Meanwhile, the Stats SA report showed that the transport, storage and communications sector contributed 0.2 percentage points to overall growth, with a reported real growth of 2.3%.

“Much of the same is expected in 2013. The strain on the mining and manufacturing sectors will probably continue,” the banking group added.

“Producers and exporters face another difficult year as the recession in [the] eurozone is forecast to continue, and local operating conditions are expected to remain challenging, given high electricity costs, strained labour relations, fading productivity and inadequate economic infrastructure,” the banking group explained.

The group forecast 2.6% real GDP growth for 2013.

“Indeed, 2013 is not expected to see economic growth running above potential and clearly the budget this week would not be the right time to raise taxes, particularly taxes impacting the corporate sector,” commented Investec Group economist Annabel Bishop.

“. . . only through tripling the size of the private sector [for which lowering corporate taxes is vital] can [real GDP] be expanded to the point where unemployment is brought down to single digits – this will not be achieved by increasing the size of the tax take of the State,” she emphasised.

Quarterly Performance
The Stats SA report also revealed that the manufacturing sector drove the momentum in quarterly growth, resulting in a rise from the weak 1.2% growth in the third quarter to 2.1% in the fourth quarter, after contributing 0.8 percentage points.

The fourth-quarter GDP growth was lower year-on-year, compared with the 3.3% seasonally adjusted annualised GDP growth achieved in the fourth quarter of 2011.

However, the increase was higher than market expectations of between 1.6% and 1.7% and in line with Investec’s 2.2% forecast.

Nomura International strategist Peter Attard-Montalto said it seemed economic activity had “bubbled up” at year-end after the stresses of strike action during the third quarter and into the start of the fourth quarter.

The mining and quarrying sector’s poor market performance, labour challenges and cost pressures resulted in a negative contribution of 0.5 percentage points, Stats SA said.

However, Attard-Montalto pointed out that all sector subcomponents, except for retail, construction and utilities, were stronger in the fourth quarter than in the prior quarter.

Stats SA attributed the quarterly growth to the manufacturing sector’s 0.8 percentage point contribution – a jump from the 0.2 contributed in the third quarter.

The sector also reported a seasonally adjusted real annualised change of 5% during the quarter under review, compared with the third-quarter’s reported 1.2%.

Attard-Montalto noted that the performance of the manufacturing sector indicated a “decent size” of inventory build-up during the fourth quarter; however, this was not sustainable over multiple quarters without a real underlying domestic and foreign recovery.

The finance, real estate and business services and general government services sectors contributed 0.6 and 0.4 percentage points respectively.

The finance, real estate and business services sector reported a seasonally adjusted real annualised growth of 2.9% during the quarter, compared with 1.8% in the third quarter, while the general government services sector reported a growth of 2.6%, compared with 2.7% in the prior quarter.

The “better-than-expected” growth seemed to be driven by agriculture and manufacturing, Attard-Montalto added.

The agriculture, forestry and fishing sector, with a 0.2 percentage point contribution, reported a 10% seasonally adjusted real annualised growth during the fourth quarter, compared with 7.4% in the third quarter.

He further pointed out that strong output in the agriculture industry was containing food price inflation more than many locals expected.

Meanwhile, the wholesale, retail and motor trade, catering and accommodation, and the transport, storage and communication sectors each contributed 0.2 percentage points to the fourth quarter’s growth.

The electricity, gas and water and construction sectors remained stagnant during the quarter, with zero percentage point contributions.