South African Economy Sends Mixed Signals

After a weak performance in 2012, the recovery may be still out of reach. Although exports gain some growth momentum, consumption continues to disappoint.
Joana Taborda | 5/22/2013 9:33:39 AM
In 2012, the South African economy only grew 2.5 percent, below 3.5 percent recorded in 2011, and well below its potential level. Indeed, job losses, high debt levels and minimum wage increases are curbing consumer spending, one of the main drivers of the expansion in the last few years. In fact, consumer confidence, which has been on a downward trend since 2010, dropped to a nine-year low level in the first quarter of 2013. More importantly, in the first three months of 2013, although the number of working people increased, the unemployment rate climbed to 25.2 percent. Moreover, in March, manufacturing production shrank 2.2 percent from a year earlier, the second contraction in a row, mainly due to lower production of petro and chemical products, iron, steel and wood. On the positive side, exports seem to be recovering. In March, shipments rose for the second month in a row, helped by depreciating Rand. Indeed, labour disputes and work stoppages in the mining sector weaken the currency. In the same period, retail sales grew by 2.8 percent yoy, following a 3.9 percent increase in February. In addition, in April, the annual inflation rate remained unchanged at 5.9 percent for the third month in a row. More importantly, by prosecuting South Africa's Industrial Policy Action Plan (IPAP), the Government recently reinforced its intention to boost growth, exports and the production of value added goods.

In the fourth quarter of 2012, the GDP increased 2.5 percent year-on-year and 2.1 percent quarter-on-quarter.

In March, yoy retail sales increased 2.8 percent, boosted by higher sales of hardware, clothing, footwear and leather goods. Consumer confidence declined to a nine-year low level in the first quarter of 2013, as slower economic growth, unemployment and higher inflation rates hurt households’ finances.


In March, manufacturing production dropped for the second month in a row and contracted by 2.2 percent yoy, partially because of fewer working days due to Easter holidays. In March, exports rose 2.9 percent mom and 4.3 percent yoy, boosted by a weak rand. Exports of mineral products and base metals were the main drivers of the expansion.
The Rand depreciated almost 20 percent against the U.S. dollar in the last 12 months. Although the weaker currency helped boosting exports in February, a few concerns arise about unexpected inflationary pressures.