Picture: REUTERS
Picture: REUTERS

NEWS on how poorly South Africa’s economy performed during the third quarter of this year will grab the limelight this week, with markets waiting to see how heavy a toll strikes in the mining sector took on the overall pace of growth.

Consensus forecasts from Bloomberg see the pace of growth in gross domestic product (GDP) slumping to 1.5% from 3.2% during the second quarter, mainly in response to a sharp contraction in mining production. The figures are due from Statistics South Africa on Tuesday.

Several analysts believe that the sector, which accounts for more than half of South Africa’s export earnings, shrank by an enormous 12% during the third quarter, seasonally adjusted and annualised.

But with the bulk of striking miners returning to work this month, the pressure on output is likely to have eased, allowing for a 2.5% rise in growth over this year.

"One should look through the very weak GDP figure in the third quarter," says Absa Capital economist Ilke van Zyl.

"It’s not something that should be straight-lined into the future and make us all panicky."

Other analysts think that with industrial action still affecting the country’s main gold and platinum producers last month, the effects of labour unrest will have spilled over into the fourth quarter.

The fallout will have also curbed manufacturing production, which South Africa’s purchasing managers index says fell more sharply last month than in September.

" With lower global demand, fourth-quarter GDP is likely to remain dismal at best," says Citigroup economist Gina Schoeman.

Manufacturing is likely to have made a modest contribution to economic output in the third quarter, recovering from a contraction of 1% in the second quarter. Retail sales are also likely to have supported the economy, although their effect will be partially offset by a sharp contraction in wholesale trade during the third quarter.

Producer inflation figures for last month, due on Thursday, will add to unease about the economy’s state of health. Consensus forecasts predict that inflation measured by the annual pace of the increase in producer prices accelerated to 4.8% from 4.2% in September.

Much of that can be attributed to the effect of the weaker rand, which raises the cost of imports. Rising food prices will also exert upward pressure, although that will be offset to some extent by seasonal falls in the cost of electricity.

"The story of rising price pressures and moderating economic growth will bring us closer to the state of stagflation," says KADD Capital economist Elize Kruger.

Stagflation refers to an environment of high unemployment, slowing growth and rising inflation.

Credit figures also due on Thursday are likely to show that private sector borrowing rose by 9.3% year on year last month, a touch above the 9.07% growth seen in September. A surge in unsecured lending is one of the reasons why credit is being sustained in the face of the economy’s slowdown.

Markets are braced for bad news on Friday, when the South African Revenue Service releases trade figures for last month.

The shortfall is likely to have narrowed slightly from R13.8bn in September, but remains far too large for comfort, as the dramatic fall in mining output hits exports.

Consensus forecasts from I-Net Bridge put the deficit at R12.5bn.