Picture: THINKSTOCK
Picture: THINKSTOCK

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ECONOMIC growth slowed last year to a level of sluggishness last seen during the recession in 2009.

And all indicators point to SA being on the cusp of a contraction.

For the year, the economy grew 1.3%, from 1.5% in 2014, as agriculture buckled under pressure from the drought, Statistics SA data showed on Tuesday. Fourth-quarter growth was 0.6%, and growth in the third quarter was 0.7%. The economy contracted 1.3% in the second quarter, while in the first quarter growth was 1.4%.

The data made it less likely that the Reserve Bank would follow January’s 50 basis point interest rate hike with another this month, despite a deteriorating inflation outlook, said Capital Economics senior emerging markets economist William Jackson.

Rating agencies have warned that anaemic growth heightened the risk of a downgrade to junk status.

The outlook for this year is bleak: the effects of the drought will continue to be felt, demand is weak, electricity tariffs will rise 9.4% this year, there is a threat of a mining sector strike, inflation is accelerating and interest rates are rising.

These factors will sharply curb spending by households and, coupled with a slowdown in government spending, spell gloom for the country’s economic growth prospects.

Growth was "far from what would be expected" to achieve the objectives in the National Development Plan (NDP), statistician-general Pali Lehohla said. The NDP says 5% growth is needed every year until 2030 for SA to make inroads into poverty and unemployment levels.

Weak global and Chinese growth, low demand, depressed commodity prices and strikes have added to SA’s economic woes.

Although the slowdown was "something to worry about", and was partly attributable to factors "out of our hands", a concerted effort was needed from policy makers, Citadel chief strategist Adrian Saville said.

Manufacturing is also under pressure. It contracted in three of the four quarters last year and did not contribute anything to economic growth for the year as a whole.

A key indicator of activity in manufacturing, the Barclays purchasing managers’ index (PMI), was released on Tuesday. It pointed to persistent weakness. Although the PMI improved from 43.5 in January to 47.1 last month, it remained below the key 50-point mark, which differentiates expansion and contraction.

Manufacturers remained downbeat in assessing of conditions that could be expected in six months’ time, with the expectations index at a fairly weak 44.8. The slight improvements in the PMI would need to be sustained before the sector posted meaningful growth, Barclays Africa economists said.

The index indicating employment fell, while new sales orders rose faster than inventories, suggesting production could pick up in coming months.

Producers are dealing with mounting cost pressures, which are evident in a sharp rise in the price index to 90.7 in February from 86 in January.

The weak rand has pushed up the cost of imported raw materials and intermediary products.

"The risk is that firms could have to pass these costs on to their customers, and we see this as a risk to consumer inflation," the Barclays Africa economists said.