With just two Monetary Policy Committee (MPC) meetings scheduled before the end of the year, one needs to look at the current economic data to try and forecast where interest rates may be by December…
Good news for consumers is that inflation came out at 4.9 percent for July which was lower than the consensus figure of 5.2 percent. The decline was mainly due to stable food prices and lower transport costs as the petrol price declined by 85c/l in June.
However, petrol prices are expected to rise sharply later in September due to a current under recovery by the Department of Minerals and Energy.
Pressure on food prices is also expected to build, but this should not pose too much of a risk to the inflation target. The low inflation numbers increase the chances of one more rate cut in 2012 to support growth which is expected to weaken for the remainder of the year. Economic growth for the second quarter of the year was an improvement on the first quarter and growth accelerated from 2.7 percent in Q1 2012 to 3.2 percent in Q2.
Mining contribution limited
The biggest contributor to this quarter's GDP was the mining sector, which contributed 1.5 percent to the growth rate of 3.2 percent. It is quite unusual to have the mining sector contributing this much to GDP because of its relatively small size.
There were major problems in the mining sector, in particular platinum mining, where strikes and work stoppages led to very low production. Production during the second quarter improved which led to a turnaround from a decline in mining output from -16 percent (Q1) to an increase of 31.1 percent (Q2). Unfortunately the contribution by mining to GDP will not continue into Q3 since there have been severe problems in one of the larger platinum mines in the first two months of this quarter.
Manufacturing affected by global slowdown
As expected manufacturing output declined in Q2; this reflects the headwinds facing this sector with exports hampered by poor demand from Europe in particular.
While strong domestic consumer demand supported the sector to some extent, part of that demand was met by higher imports.
The fortunes of the manufacturing sector are closely aligned with developments in the global economy, and the outlook for the last two quarters of 2012 remains somewhat bleak.
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