Silver lining to lax growth

Despite avoiding a recession, South Africa's economic growth remains feeble. This could, however, be good news for those paying off their bonds.

The second quarter registered a 0.6% growth, up from minus 0.6% in the first quarter, according to GDP figures released by Stat s SA yesterday.

It is the second-worst quarter for the South African economy in five years, worse even than in the months that followed the Marikana tragedy in 2012.

Old Mutual Investment Group chief economist Rian le Roux said the low growth rate reduced the chances of further interest rate increases this year.

He said the Reserve Bank might conclude inflation had peaked.

Inflation has been above the upper limit of the bank's target band of 3% to 6% for most of the year.

While it tries to keep inflation within this band, the Reserve Bank also takes economic growth into account and has been careful not to hit overburdened consumers too hard, especially as consumer spending spurs economic growth.

Nedbank's economists expect consumers "to remain cautious given pressure on household income, rising debt service costs and a deteriorating job market".

The Nedbank team predicted Reserve Bank governor Gill Marcus will add another 0.25 percentage point hike later this year.

Marcus and her monetary policy committee have already raised the repo rate from 5% to 5.75% (and prime from 8.5% to 9.25%) this year.

It is the productive parts of the economy that have once again dragged the other industries down.

Mining and manufacturing were the biggest burdens.

Together, they accounted for as much as a 0.8 percentage point of the contraction.

FNB economist Alex Smith said, with the mining strike having ended in June, he expected that sector to enjoy a rebound.

But the impact of the month-long industrial action in the metals and engineering sector has yet to be properly measured as it only started in July.

Both Smith and Le Roux expect economic growth for the entire year to be 1.5%, compared to about 2% last year.