Gdp shrinks again but pace is slowing

THE worst of South Africa's recession may be over, gross domestic product data suggested yesterday.

GDP contracted by 3percent in the second quarter, following the 6,4percent decline reported by Stats SA in the first quarter of the year.

The economy shrank for the third consecutive quarter, making this the largest economic contraction in 17 years. The figures are a sharp decline from growth rates in 2008.

Economists believe, however, that the pace of decline is moderating and the economy is expected to either stabilise or decrease at a reduced rate in the third quarter of the year. Positive growth is expected at the end of the year, if not then in the first quarter of 2010.

Investec Group economist Kgotso Radira said: "Most sectors recorded a contraction but at a lesser pace. The main contributors were manufacturing, wholesale and retail trade. Upward support came from mining and quarrying, construction sectors, and general government services."

The decreased GDP figure supports last week's decision by the Reserve Bank's Monetary Policy Committee to drop the repo rate by 50 basis points to 7percent per annum.

While most economists believe the interest rate cut was the last this cycle, Brait's Collen Garrow believes a further cut is required.

Sanlam investment economist Arthur Camp agreed: "A further rate cut will ease the debt servicing burden."

The manufacturing sector shrunk the most. But Camp said the sharp increase in new orders shows this sector is set to recover.

Construction showed a double-digit positive growth of 12,2percent. Camp attributed this to the success of the government's investment in infrastructure. "[This] has proven an effective response and the correct thing to do."

The finance sector has recorded two consecutive contractions, "which is no surprise as banks are not lending money," said Garrow.