Growth is 'cold comfort'

A massive rebound in the mining sector lifted GDP growth to above 3% in the second quarter but the numbers mask deeper-seated distress in the economy, according to economists.

Growth was stronger than the 2.7% of the first quarter and in line with expectations, at 3.2%, quarter on quarter and annualised, Statistics SA reported yesterday.

Johan Rossouw, an economist with Vunani Securities, said it was heartening that eight of 10 industries had posted quarterly growth.

"Nevertheless, closer inspection of the numbers does suggest all is not well beneath the surface," he said.

Mining output jumped by more than 30% in the second quarter, mostly reflecting the recovery from a six-week strike at Impala Platinum in the first quarter, according to Rossouw.

But the turmoil in mining after more labour unrest in the platinum sector does not bode well for GDP growth.

Mike Schussler, of Economists. co.za, said that if the effect of this abnormally large mining recovery were stripped out of the second-quarter statistics, GDP growth would have been only 1.7%.

The possibility of the Chinese economy slowing, resulting in both lower prices and a lower demand for commodities, could also retard growth in the mining sector - and the economy as a whole - in the rest of the year.

"It is also quite concerning that the 'engine room' of the economy, the manufacturing industry, contracted," said Rossouw.

"Apart from domestic demand for manufactured goods not being particularly buoyant, sluggish demand from South Africa's most important export destination for manufactured goods, Europe, is clearly taking its toll on manufacturing output growth," he said.

A significant improvement in the foreseeable future was unlikely, according to Rossouw.

Europe is struggling with a sovereign debt crisis and growth has been flat in most of the region's economies.

Standard Bank economist Thabi Leoka also believes the outlook is bleak.

"Though consumption expenditure might continue to be the saving grace, growth here is likely to continue to be challenged," she said.

Factors such as a subdued Purchasing Managers' Index - showing stress in the manufacturing sector - a suffering labour market, and depressed consumer and business confidence could rein in consumers' appetite for spending, Leoka said.