Insulating South Africa against global risks

In a recent speech, Reserve Bank Deputy Governor Daniel Mminele said that next week’s Q2 supply-side GDP numbers were likely to be “less stellar” than the 4.6% q/q saar growth recorded in Q1. Mminele presented an unchanged 2010 GDP growth forecast from that communicated at the Bank’s last MPC meeting, where it looks for the economy to grow 2.9%.

The deputy governor spent a large portion of the speech discussing the global economic crisis and continued to suggest that “uncertainties emanating from the global economy pose the main downside risks” to this projection.

On the rand, he said that the current low interest rate environment in developed nations had “resulted in a consistent search for yield. As a consequence, South Africa, like other emerging markets, had attracted significant capital inflows, which were supporting the currency.

Strong GDP growth for SA in first quarter

GDP growth in South Africa rose to an annualised quarterly 4.6% in Q1 10 from 3.2% the previous quarter. On a y/y basis, GDP grew 1.6% in Q1 10, the first positive y/y growth since Q4 08.

The impressive growth in Q1 was driven largely through the manufacturing, mining, and finance and real estate industries, which contributed more than half of the headline 4.6% q/q rise in Q1. Looking ahead, we expect quarterly economic growth to remain broadly in line with yesterday’s number, with the risk of perhaps some near-term weakness related to the strike action in the transport sector.