S.Africa's Q4 GDP growth quickens - CNBC Africa

S.Africa's Q4 GDP growth quickens

Financial

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The South African Reserve Bank raised interest rates for the first time in nearly six years in January. PHOTO: Getty Images

The country’s GDP languished below 2 percent as the continent's powerhouse struggles to shake off the aftermath of a 2009 recession.

The data gives the government less room for manoeuvre in its efforts to slash unemployment from nearly 25 percent, one of the biggest headaches for President Jacob Zuma's ruling ANC as it gears up for general elections called for May 7.

The weak growth also adds pressure on Finance Minister Pravin Gordhan who has to keep spending in check and rein in an unwieldy deficit, leaving him little room to offer stimulus in a budget due on Wednesday.

Gross domestic product increased by 3.8 percent quarter-on-quarter in the fourth quarter of 2013 after expanding by 0.7 percent in the third quarter, Statistics South Africa (Stats SA) said on Tuesday.

On an unadjusted year-on-year basis, the economy grew by 2 percent in the fourth quarter, compared with a revised 1.7 percent in the previous three months.

Economists polled by Reuters expected quarter-on-quarter growth of 3.4 percent, while the year-on-year rate was seen at 2.1 percent.

Stats S.A. attributed the quarterly rebound mainly to base effects, as the automotive sector recovered from strikes earlier in the year while gold output also improved.

But it was not enough to boost overall growth for 2013, which slowed to 1.9 percent from 2.5 percent the previous year.

This is a far cry from average growth levels of about 5 percent recorded in the five years before South Africa fell into a recession in 2009.

"The consumer remains under some pressure, and we would expect an ongoing slowdown in 2014 given additional pressure from factors such as double-digit petrol price increases, higher than expected food inflation and the recent interest rate hike," said Macquarie economist Elna Moolman.

INFLATIONARY PRESSURES

The South African Reserve Bank raised interest rates for the first time in nearly six years in January, in a bid to stem inflation pressures coming mainly from a sharp depreciation in the rand over the past year.

The short-term interest rate market is pricing in the chance of another 150 basis points of increases by the end of 2014.

Inflation was at 5.8 percent on an annualised basis in January, from 5.4 percent a month earlier.

The currency fell more than 20 percent against the dollar in 2013, and has already lost nearly 3 percent of its value so far this year, although it clawed back some ground on Tuesday after the better-than-expected fourth quarter growth data.

Analysts expect a sharp slowdown in GDP growth for the first quarter of 2014, with a contraction likely in the mining sector due to renewed strike action which has hit some of the world's largest platinum producers.

"The bigger picture is that the economy is still very weak," said Shilan Shah, Africa economist at Capital Economics.

"What's more, even though growth is set to remain lacklustre, (monetary) policy is likely to be tightened over the coming months."

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