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UPDATE 2-South Africa's growth quickens but strikes cloud outlook
August 27, 2013 / 11:24 AM / in 4 years

UPDATE 2-South Africa's growth quickens but strikes cloud outlook

* Strongest GDP number in a year

* Car and gold sector strikes could weigh on Q3

* Little room for central bank rate move - economists

By Tosin Sulaiman

JOHANNESBURG, Aug 27 (Reuters) - South Africa’s economic growth accelerated at a solid but slower-than-expected pace in the second quarter, driven by manufacturing, but with simmering labour unrest in key sectors now clouding future prospects.

Gross domestic product expanded 3.0 percent quarter-on-quarter in April to June, the highest gain for a year, Statistics South Africa said on Tuesday.

It undershot economists’ expectations of 3.3 percent, however, and was largely due to a one-off bounce from the manufacturing sector, which grew 11.5 percent in the second quarter on a recovery in base metals.

The growth number left the rand hovering near the four-year lows it plumbed last week over a strike in car production and a threatened walkout in gold mines.

Emerging market currencies in general were taking a hit from investors rushing into safer assets over uncertainty about future U.S. stimulus and possible Western military action in Syria.

For South Africa, economists were downbeat.

“The pick-up in growth shouldn’t detract from the fact that the economic outlook remains lacklustre. What’s more, the fresh sell-off in the rand leaves the Reserve Bank with no room to loosen monetary policy,” Capital Economics said in a note.

Manufacturing is the second biggest sector in South Africa’s economy after finance, real estate and business services. The industry’s expansion in the second quarter was the highest since the first quarter of 2011.

But third quarter growth is expected to take a hit from the strike that started last week by about 30,000 autoworkers. The sector accounts for about 6 percent of GDP and the walk-out is costing the economy an estimated $60 million a day.

The mining sector, which contracted 5.6 percent in the second quarter from the first, is bracing for strikes at gold producers, which could cost the economy over $35 million a day in lost output, based on current spot prices of the metal.

Mining strikes were cited by major international credit ratings agencies in the past year as a factor in lowering their sovereign ratings and have been a headache for President Jacob Zuma’s ANC government, which faces elections next year.

UNCOMPETITIVE ECONOMY

Africa’s biggest economy has millions of unskilled workers, nearly 40 percent of its population living on less than $5 a day and half of adults out of work.

Employers blame an uncompetitive, low-skill, high-wage economy with restrictive labour laws for keeping unemployment high. Since 2000, real after-inflation wages in South Africa have risen 53 percent, while productivity fell by 41 percent.

The central bank has warned that ending the current round of strikes with settlements above inflation, which it estimates to average 5.9 percent this year, poses additional risks and could stoke inflation.

Economists said the GDP data leaves the Reserve Bank little room to cut interest rates when its Monetary Policy Committee meets next month.

Inflation breached the ceiling of the bank’s 3-6 percent target band last week and separate data has indicated that a credit-fuelled buying spree is coming to an end, dimming growth prospects.

“I don’t think they (central bank officials) will be fooled into believing that suddenly the South African economy is growing at 3 percent,” said Jeff Gable, an economist at Absa Capital.

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