Nedbank: Gross Domestic Product

31 Aug.

Nedbank Economic Commentary: Gross Domestic Product – Q2 2011.

Real GDP growth slowed more than expected in the second quarter.

• Real gdp grew at a much slower pace in the second quarter, falling to a seasonally adjusted annualised 1,3% q-o-q and 3% y-o-y from a downwardly revised 4,5% q-o-q and 3,5% y-o-y in the first quarter. The market expected an increase of 1,6% q-o-q, while Nedbank anticipated 1% growth.
• The main drag on growth came from manufacturing, mining and agriculture, but economic activity in most other major sectors also slowed over the quarter.
• The weak second quarter was in line with our expectations, but the revisions to earlier data mean that our forecast for gdp in 2011 slips to 3,2% (3,3% previously) and for 2012 to 3,5% (3,6% previously). Economic activity will remain subdued in the third quarter, dragged down by a wave of strikes across key industries and the disruptions caused to the steel and automotive pipelines due to structural failure at Arcelor Mittal’s Newcastle furnace. Weaker export demand and softer consumer spending will also contain gdp growth rates during the remainder of this year.
• Today’s gdp figures confirm that the economy slowed sharply in the second quarter. More recent indicators also suggest that the weaker trend continued into the third quarter. Added to this, there is little evidence of a convincing rebound in the world economy after a disappointing second quarter. Developed economies appear to be increasingly vulnerable, with growth losing momentum, held back by high public and private debt burdens, structurally high unemployment, weak housing markets, the shift towards fiscal austerity and ineffectual monetary policies. Economic activity in the large emerging markets remains strong, but growth rates are slowing in response to tighter monetary policies. At the MPC’s next meeting in September, the mounting downside risks to economic growth are likely to dominate, outweighing the upside risks to inflation. In an about turn, the markets are now calling for another cut in interest rates, but the MPC is likely to remain cautious and more inclined to keep the current neutral stance for longer. Although the chances of rate cut have increased, especially if the world and local economies were to weaken even further, we still expect interest rates to remain on hold until May 2012.

Comment

The economy lost momentum in the second quarter, with real gdp growing at a much slower pace, dragged down by sharp falls in manufacturing, mining and agricultural output. Softer conditions in the domestic trade and accommodation as well as finance and real estate industries also contributed to the weaker overall performance. In contrast, real value added by general government rose sharply, contributing 0,8 percentage points to the q-o-q gdp increase, while real value added by the transport and communications industries also picked up pace, contributing 0,4% to the quarterly growth rate. …

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