Shrinking economy could force interest rate cut in SA

PRETORIA – South Africa’s economy shrank for the first time in a decade in the fourth quarter of 2008, weighed down by a big fall in manufacturing output and boosting the chances of an early interest rate cut.

Statistics South Africa said on Tuesday the economy contracted by a more-than-expected 1,8 per cent annualised compared to the third quarter, when it grew just 0,2 per cent.
Africa’s biggest economy expanded by 3,1 per cent for 2008 as a whole – slower than 2007’s 5,1 per cent.
Output in the manufacturing sector, the second biggest, fell by its biggest margin in 40 years.
‘The lowest growth was from manufacturing, which weighs 16 per cent on the whole GDP and which contracted 21.8 percent,’ Kedibone Mokone, manager for GDP at Stats SA, said.
‘This was due to the global economic meltdown, the hardest hit industry was motor trade.’
The data may hasten interest rate cuts and suggested the economy may be heading for recession.
‘It’s worse than we expected. There is no doubt now the economy will be not able to avoid a recession as the Reserve Bank and Treasury had indicated, and this increases the probability of aggressive monetary easing,’ Barnard Jacobs Mellet economist Elna Moolman said.
‘We think the Reserve Bank should announce an emergency meeting, and, if it does, we would expect a cut of at least 100 basis points.’
Central bank Governor Tito Mboweni said shortly after announcing a full percentage point cut in the repo rate to 10,5 per cent on February 5 that the policy committee may call a special meeting if data disappointed.
The next scheduled meeting is for April 15-16.
– Nampa-Reuters
Published on the web by Business Report on February 24, 2009.