Search

 

Cablegate: South African Economic Growth Still Expanding

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 PRETORIA 004132

SIPDIS

DEPT FOR AF/S/MTABLER-STONE; AF/EPS; EB/IFD/OMA
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND
TREASURY FOR OAISA/RALYEA/CUSHMAN
USTR FOR COLEMAN
PARIS FOR NEARY

E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT: South African Economic Growth Still Expanding

1. Summary. The September 2005 Quarterly Bulletin
describes an expanding South African domestic economy,
operating at close to its long-term potential. In the
second quarter 2005, real GDP growth reached 4.8%, up from
the first quarter's growth of 3.5%. Domestic demand's
growth in the second quarter more than doubled the first
quarter's growth, primarily due to a recovery in
government consumption expenditures. Consumer spending
remains strong. Household disposable income showed 5.7%
growth in the second quarter. Rising asset prices, high
consumer confidence, low inflation and interest rates also
support strong consumer spending. Increased credit
financed consumer spending, with the household debt to
disposable income ratio reaching 61.8% in the second
quarter, compared to 51.4% six quarters earlier. If
interest rates increase in the future, the high debt may
serve as a brake for continued robust consumer spending.
End Summary.

The Domestic Economy Powers On
-----------------------------

2. Real domestic demand (excluding the foreign sector),
now in its 18th quarter of positive growth, expanded 4.9%
in the second quarter 2005 compared to 1.7% in the
previous quarter. A higher growth in government
consumption expenditures and inventories explained the
second quarter recovery in domestic demand growth. Fixed
capital formation by general government increased as the
government boosted spending on infrastructure. Real
spending on capital formation increased 5.7% and
inventories more than doubled in the second quarter 2005.
The highest real sectoral growth rates came from the
agricultural industry, at 10.1%; manufacturing, at 7.3%;
transport and communication, at 6.4% and construction
posting 6.2% growth.

Consumption and Investment Still Growing
----------------------------------------

3. Total consumption accounts for over 80% of domestic
demand, with households two thirds of consumption
spending. Household spending strengthened slightly in the
2nd quarter, growing by 5.9%, although government
consumption accounted for most of total consumption's
rebound in 2nd quarter growth, reaching 5.7%. Government
consumption expenditures increased by 5.3%, compared to
1.2% last quarter, due to higher real compensation of
employees and increased spending on intermediate goods and
services.

4. A substantial part of this increased spending was
financed by credit, pushing the household debt to income
ratio up to 61.8% in the second quarter 2005 compared to
2003 fourth quarter's ratio at 51.4%. Increased equity
prices, low interest rates and inflation (so far), and
rising disposable incomes have fueled debt acquisition.
Household disposable income increased 5.7 percent in the
2nd quarter 2005. If inflation increases more than
anticipated and interest rates rise, households may reduce
their debt exposure, providing a possible brake to robust
consumer spending.

5. Real capital formation increased 5.7% in the second
quarter, although down from 1st quarter's growth of 10.1%
due to reductions in capital outlays of public
corporations. (Note SAA purchased three aircraft in the
first quarter 2005. Endnote) Private sector investment
increased 4.0%, similar to 1st quarter's growth, with
investment in commerce, transport and real estate leading
the way.

Current Account Deficit Narrows
-------------------------------

6. Both exports and imports staged second quarter
recovery, with both increasing over 20% compared to last
quarter's declines of 13% and 17%, respectively. When
measured as a percentage of GDP, the current account
improved from 3.8% in the first quarter to 3.4% in the
second quarter 2005.

7. Total exports from the Euro-zone declined during the
second quarter; exports to Asian nations increased by
28.6% (compared to 24.5% in the first quarter 2005) and
exports to North and South America remained unchanged.
During 2nd quarter 2005, merchandise imports increased by
6.5% after declining by 4.5% in the first quarter,
primarily because of an increase in oil imports.

8. Comment. Indicators point to over 4% GDP growth in
2005, although GDP will fall short of 6% growth needed to
meet government's goal of halving unemployment and poverty
by 2014. Government's strategies to achieve higher levels
of economic growth are focused on raising the levels of
investment, improving the skills of the workforce,
introducing new technologies, and improving the
infrastructure of the transportation, utilities and
telecommunication sectors. A recent IMF report on South
Africa emphasized necessary reforms such as highlighted
labor market flexibility, increased privatization, and
trade liberalization to achieve 5.5 percent growth and 18%
unemployment by 2010. The South African government is
exploring ways of achieving 6% growth with task force
(made up of the Ministers of the Department of Trade and
Industry, Finance, Public Enterprises and the Deputy
President) recommendations due later this year. Higher
than expected inflation and subsequent increased interest
rates pose possible obstacles to 4% growth in 2005,
although most analysts expect interest rates to remain
stable over the year. End comment.

TEITELBAUM

© Scoop Media

 
 
 
World Headlines

 

Climate Change: Record Northern Heat, Fuels Concerns Over US Wildfire Destruction

More than 78,000 acres of forest in the Sierra mountains in California has been lost due to wildfires. Photo: San Francisco Fire Department The northern hemisphere experienced its warmest August ever, the World Meteorological Organization ( WMO ... More>>

UN: Guterres Condemns Killing Of Journalists, Following Beheading Of Mexican Crime Reporter

© UNESCO | International Day to End Impunity for Crimes against Journalists. Following the gruesome death of a Mexican journalist specializing in crime reporting, who was found beheaded on Wednesday, UN chief António Guterres has issued a statement condemning ... More>>

UN: WHO Warns Against Potential Ebola Spread In DR Congo And Beyond

Ebola is spreading in a western province in the Democratic Republic of the Congo (DRC), raising fears that the disease could reach neighbouring Republic of Congo and even the capital, Kinshasa, the World Health Organization (WHO) said on Friday. ... More>>

WWF: Living Planet Report Reveals Average Two-Thirds Decline In Wildlife Populations Since 1970

According to WWF’s Living Planet Report 2020 released today, global populations* of mammals, birds, amphibians, reptiles and fish have suffered an average two-thirds decline in less than half a century. The decline is due in large part to the very ... More>>