South Africa’s economy barely grows in Q3 renewing downgrade fears

JOHANNESBURG (Capital Markets in Africa) – South Africa’s economy barely grew in the third quarter of the year as the manufacturing sector contracted sharply, renewing fears that the reprieve from ratings downgrades will only be temporary.

Gross domestic product expanded by only 0.2 percent in the period between July to September compared with a revised 3.5 percent in the second quarter, Statistics South Africa said on Tuesday.

The figure was just shy of the 0.5 percent growth anticipated by economist polled by Reuters.

The rand firmed in response to the release of the data, touching a session high of 13.6400 per dollar from 13.7300/dollar before its release.

On year-on-year basis the economy grew at 0.7 percent from 0.6 percent previously.

The meagre growth in the quarter was led by a 3.2 percent decline in the manufacturing sector, followed by a 2.8 percent decline in the electricity sector and a 2.1 percent contraction in trade and accommodation.

“The decline in manufacturing is very concerning,” chief economist at Nedbank Nicky Weimar said.

Manufacturing now accounts for only 13 percent of the economy, down from around 25 percent two decades ago.

“The ratings agencies anticipated this weakness but the point is if we don’t get faster growth it will be much harder to improve our fiscal metrics and improve (reduce) unemployment.”

Last Friday S&P Global Ratings kept South Africa’s sovereign debt score unchanged on the lowest investment level with a negative outlook, but cut the country’s local debt rating to match the sovereign.

The agency cited weak growth, increasing state debt as well political uncertainty as reasons for the continued negative outlook.

Source: Reuters Africa News