* Mining, manufacturing, agriculture contract
* Bonds firm after GDP data
* Reserve Bank might consider cutting rates
* Job creation tough, monetary policy alone no answer
By Phumza Macanda
JOHANNESBURG, Nov 29 South Africa's
economy grew less than expected in the third quarter
highlighting domestic weakness that might see the Reserve Bank
consider cutting interest rates.
Rates on the forward rate agreements (FRA) market -- a gauge
of interest rate expectations -- also trended lower after the
data. Government bonds firmed sending yields lower.
The South African Reserve Bank (SARB) has left the repo rate
flat at 5.5 percent throughout 2011, after reductions totalling
650 basis points in the two years to the end of 2010.
Statistics South Africa said on Tuesday gross domestic
product for the third quarter was at 1.4 percent on a seasonally
adjusted and annualised basis - less than the 1.8 percent the
market expected - after 1.3 percent growth in the second
Mining, manufacturing and agriculture, which make up about a
quarter of the economy, contracted while consumer spending
supported the economy.
"Any boost provided by a rebound from strike action is
likely to have been eroded by the economy's poor export
performance on the back of the synchronised downturn in the
global economy," said Annabel Bishop, economist at Investec.
"The poor economic growth outcome has significantly
increased the chance of an interest rate cut materialising at
the next MPC (monetary policy committee) meeting."
The Reserve Bank has said its focus remains the achievement
of a 3-6 percent inflation target over the medium term but will
remain sensitive to the domestic economic situation.
Credit data earlier showed growth ticked up to 5.52 percent
a reflection of a modest pace in recovery.
The National Treasury cut its 2011 growth forecast to 3.1
percent citing risks from a sluggish global economy.
"It seems that we are more dependent on the global recovery
than domestic demand," said Mandla Maleka, economist at Eskom.
"If that is the case, then let's expect interest rates to
remain low for an extended period," he said, adding the GDP
number could put pressure on the central bank to consider
lowering interest rates.
South Africa needs to increase the rate of economic growth
to an average 7 percent a year to make a meaningful impact on
unemployment that is at 25 percent of the labour force.
Finance Minister Pravin Gordhan has said it will be
difficult for South Africa to meet its target of creating 5
million jobs by 2020.
President Jacob Zuma's government has prioritised job
creation to improve the plight of the millions who continue to
live in poverty, 17 years after the end of minority rule.
"Without a meaningful increase in employment, especially
formal sector employment, the South African economy will
continue to lose momentum, aggravating the already unbalanced
and worrying social conditions," said Kevin Lings, economist at
"A range of policy initiatives are crucial in facilitating
economic growth, asking monetary policy (interest rates) to
solve all of South Africa's economic woes is unfair and
The Reserve Bank's next meeting is on Jan 17-19.