Mining and manufacturing are supporting gross domestic product growth, but a stronger GDP might temper rate cut expectations, according to Brait economist Colen Garrow.

Garrow says the extent to which government revises its gross domestic product growth target for the year will be known when Finance Minister Trevor Manuel releases the medium term budget policy statement this afternoon.

"Pencilled in at 3.3%, when the minister released his national Budget on 26th February 2003, the National Treasury has since flagged its intention of revising growth for 2003, possibly to 2.5%. But before this and other revisions  to key macroeconomic variables are released, production components of GDP suggest the supply side of the economy has begun responding to an improvement in global demand, and in particular to the consequent increase in demand for commodities," says Garrow.

Data released by Stats SA show that mining output increased by 26% in the third quarter of this year, on a seasonally adjusted annualised basis.

Production of non gold minerals, like platinum, diamonds, coal and building materials buoyed the sector, while gold production decreased.

Manufacturing data, also released by Stats SA, broke out of its recessionary trend, growing by 0.6% in the third quarter, on a seasonally adjusted annualised basis.

Manufacturing had previously contracted by 4.1%, 6.4% and 3.2% in the final quarter of 2002, and in the first and second quarters of 2003 respectively.

"Mining and manufacturing data have an important influence on GDP figures, carrying weightings of 4.9% and 18.4% respectively in second quarter growth data.

"Improvements such as these suggest statistics for the third quarter of the year may be higher than the 1.5% and the 1.1% the economy grew by in the first two consecutive quarters of 2003. Leading indicator data released by the South African Reserve Bank recently confirmed that the economy remains in an upward phase of its business cycle, the longest on record. This is hardly surprising considering considerable fiscal and monetary relief South Africans  received this year.

"An improvement in the supply side of the economy is indeed welcome news for an economy battling the impact of a strong currency. It also complements buoyant demand conditions which for much of the year have carried GDP. However, data may temper hopes that rates may be eased by one percentage point when the central bank's monetary policy committee meets next month," Garrow states.

"The Bank remains vigilant to any threat of inflation; it knows that further monetary relief at a seasonal time of the year is likely to stimulate demand. It is therefore worth remembering that whatever the Bank does next month it will have the inflation target in mind," he adds.

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