Nedbank: Gross Domestic Product

01 Jun..

Nedbank Economic Commentary: Gross Domestic Product.

Real gdp growth surprised on the upside in the first quarter.

• Real gdp grew at a seasonally adjusted annual rate of 4,8 % q-o-q in the first quarter, up from 4,5 % in the final quarter of last year and substantially above market expectations of a 4,2 % increase. Nedbank expected growth of 4,3 % q-o-q.
• The main boost came from the manufacturing sector, with strong contributions from domestic trade and accommodation, finance and real estate as well as transport and communications. However, growth in most other major sectors slowed somewhat, while agricultural production contracted by 2,6 % q-o-q.
• Given the relatively strong start to this year, the economy is expected to grow by over 3,5 % in 2011 as a whole. However, the pace of growth is forecast to moderate off the higher base in the quarters ahead. The domestic trade and services industries will continue to lead the way, buoyed by robust consumer spending. Although production and exports will rise further, the rate of increase will moderate as the world economy softens and commodity prices levels off in the second half of the year.
• At first glance, recent economic data suggests that the economy is growing at a healthy pace while inflation is moving higher, with the SARB now expecting inflation to breach the upper 6 % limit of the Bank’s target range by year-end. As a result, the markets are expecting interest rates to increase by between 50 to 100 basis points later this year. However, growth prospects remain clouded by considerable downside risks, while the rise in inflation is largely due to higher global oil and food prices, with little to no evidence of any second-round effects or demand pressures on prices. The MPC will probably remain reluctant to tighten monetary policy too quickly or aggressively as higher interest rates will do little to contain inflation but will hurt the economy and job creation. Consequently, we expect the MPC to hold off on the first rate hike until early 2012.

Comment

Real gdp grew much faster than the market expected in the first quarter, expanding by a seasonally adjusted annualised 4,8% q-o-q, substantially up from 4,5% in the final quarter of last year and above consensus forecasts of a 4,2% q-o-q increase.

The manufacturing sector provided the main boost, but domestic trade and accommodation, finance and real estate as well as transport and communications also contributed.

Real value added by manufacturing rose at an annual rate of 14,5% q-o-q, contributing 2,2 percentage points to the quarterly gdp growth rate. The large export-orientated producers upped production substantially in the first quarter to take advantage of strong global demand and high commodity prices. The best performing manufacturing industries were ‘petroleum, chemicals, rubber and plastic products’ as well as ‘basic iron and steel, non-ferrous metals, metal products and machinery’. In contrast, growth in real value added by mining slowed sharply off the high base set in the previous quarter while a disappointing field crop season dragged real value added by agriculture down by a seasonally adjusted annualised 2,6% over the quarter.

Services industries performed well. Consumer spending accelerated as household incomes rose, retailers continued to offer attractive prices and interest rates remained at over 35-year lows. Real value added by the broader wholesale, retail, motor trade and accommodation industries rose by 4,4% over the quarter, up from 3,5% in the final quarter of last year. Encouragingly, real value added by the finance and real estate industries surprised on the upside, expanding by 4,8% q-o-q and contributing one percentage point to the quarterly gdp growth rate. Conditions in the banking industry improved due to a moderate pick up in general credit demand and greater use of transactional facilities. In contrast, real estate activity remained subdued as reflected in faltering house prices and modest growth in mortgage advances. …

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