Domestic activity drives growth but external sector picks up
GDP growth surprised slightly on the upside in Q4, rising 0.5% on the quarter. Continuation of a reasonable rate of domestic demand growth and a modest increase in exports is expected to result in 2.8% GDP growth for 2013, up from 2.5% in 2012.
Domestic demand will remain the key driver of GDP growth in 2013 and 2014, though signs of softening are visible. Retail sales struggled to make any headway in Q4 2012, and domestic vehicle sales have eased in recent months. Higher inflation this year, compared with 2010 and 2011, will continue to weigh on consumption by undermining disposable income. Recent labor unrest and credit rating downgrades will also keep private investment spending restrained.
Regarding the external sector, we expect net exports to exert a smaller drag on growth in 2013 than in 2012. A weak exchange rate, a rebound in the mining sector from last year’s strikes and the improved global economy should boost sales.
However, this could be threatened by a weaker than expected recovery in key trading partners, resulting in a stubbornly high external deficit. If sizeable external financing is continually required to fund the deficit, the South African Rand could weaken further, pushing inflation further above our baseline. Risks also come from recurrence of labor unrest in mining, which constitutes around a third of exports.
Contributions to GDP
Source: Oxford Economics
Current balance
Source: Oxford Economics
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