Bernard Sathekge

This week, a major highlight of the local economic calendar would be the release by Statistics South Africa of the GDP data for the second quarter of 2011, where slower growth was expected, Brait economist Colin Garrow said.

He said while the jury might be out on the extent to which the economy slowed from the previous quarter, there was broad consensus that its momentum slowed drastically from the 4.8% it grew by in the first three months of the year.

He said reasons for the slowdown were abundant, considering the fact that supply sectors were under pressure, battling to cope not only with the strength of the rand was having on their export activities, but also with the impact of global market volatility.

“The source of problems arises not only from the soft patch in the US economy, which many believe is being tipped into a double-dip recession, but also from the crisis continuing in the euro zone.

“Trade with this bloc remains one of the most significant for South Africa. The euro accounts for the largest weighting in the SA Reserve Bank’s trade-weighted index, a basket of 15 currencies. What affects Europe, will inevitably affect South Africa,” Garrow said.

Using the Purchasing Managers Index (PMI) as a proxy for the manufacturing sector, Garrow said some disappointment in the value-added contribution to domestic output in Q2, would not be unreasonable.

However, said Garrow, the PMI had fallen for four straight months in a row and most recently to 44.2 in July, which was affected by numerous strike activities.

“In an environment in which GDP growth is slowing, the benefit of the credit multiplier isn’t fully exploited. Annual growth in credit extended to the private sector remains lethargic, with data for July expected to be little changed from the previous month, around 5.2%.

“Among its components, the largest, mortgage advances, is expected to remain near-static from the previous month. This reflects a number of economic concerns – the poor state of the labour market, weak consumer confidence, adjustments that have arisen from a number of more expensive administered prices, high levels of household debt, and a preference for consumers to postpone consumption in favour of winding down debt,” he said.

Chris Hart, chief economist at Investment Solution, predicted growth to be just under 2%. He also attributed the reason for slower growth to the current global economic crisis and a huge number of strikes locally.

“It is very difficult for one to start to predict when growth will start picking up again because the environment is currently hostile,” Hart said.

bernards@thenewage.co.za