Gross domestic product growth for the fourth quarter of 2009 came in at 3.2%, Statistics SA said on Tuesday. That is considerably above what all but the most optimistic economists were forecasting – and it's going to bite you in the bond real soon.
The economy didn’t just turn around in the final quarter of last year, it took off sprinting. That real 3.2% growth (measured quarter-on-quarter, on annualised and seasonable adjusted figures) compares to economic shrinkage in the previous three quarters that ranged from 7.4% to 0.9%. Nor did that growth come entirely from public spending; manufacturing and mining have contributed nicely. Basically, the factories are smoking, the mine trucks are running and, with any luck, employment should follow right behind.
The difference between the roughly 2.5% growth that sober economists were expecting and the actual growth rate is the chances of one last cut in interest rates. It used to be a remote possibility. Now it is unthinkable. In fact, the odds of a rate increase in the next three months just jumped to “probable”. Which will, of course, have Cosatu marching in the streets and mortgage payers grumbling.
Just this once Cosatu may turn out to be right. Growth expectations for the rest of the year are heavily influenced by the World Cup. Basically, if foreigners flood into the country and spend money like nobody’s business for a month, then we’re at bigger risk of an overheating economy and in greater need of (slightly) higher interest rates to prevent a dip in the second half of 2010. If spending during June is more muted, then we’ll need a corresponding lower interest rate to keep the momentum going.
The problem, of course, is that nobody knows. There are some pretty smart guesses going around, but they’ll only be proven right or wrong in September and October. By which time the Reserve Bank’s Monetary Policy Committee will already be either praised or vilified for decisions made in March and April on the basis of best guesses.
By Phillip de Wet
Read the entire Stats SA report here.
Photo: A worker inspects cars at Nissan’s manufacturing plant in Rosslyn, outside Pretoria, September 11, 2009. REUTERS/Siphiwe Sibeko