February 23, 2004

By Quentin Wray

Johannesburg - Economic activity probably started picking up in the final quarter of last year, but not enough to lift growth for the year above the lacklustre 1.9 percent estimated by the government, according to economists.

In 2002 the economy grew 3.6 percent, up from 2.7 percent the year before. It grew at an average 2.8 percent a year over the 10 years to the end of 2002, up from an average of 1 percent a year over the previous decade.

Last year's interest rate cuts, which dragged the prime lending rate down to 11.5 percent from 17 percent at the start of the year, had boosted household demand and offset, to some extent, the poor export performance resulting from the strong rand and a sluggish global economy

Merrill Lynch economist Nazmeera Moola said all the signs were there that the economy had "bottomed out" in the second quarter of last year.

However, although the supply side of the economy was still struggling, there were indications that domestic demand had picked up strongly, as evidenced by strong retail sales.

In the first nine months of last year agriculture and manufacturing - both vulnerable to the currency - dragged economic growth south and Goolam Ballim, an economist at Standard Bank, said this thread had probably continued through the fourth quarter. 

These two industries combined make up about one fifth of gross domestic product.

Ballim said the services sector would have lent the economy some support in the last three months of 2003 with anecdotal evidence suggesting that cellular networks, retailers and wholesalers enjoyed good summers.

Tourism, a great performer when the rand was so weak, probably did not experience a repeat of the end-2002 boom times although room occupancies remained at around 80 percent.

Growth in the real estate and financial sectors had slowed during 2003, Ballim said, but the rate cuts had probably given them a year-end fillip as household and business spending picked up.

Dawie Roodt, an economist at the Efficient Group, expected strong growth in the mining, transport and communications sectors in the fourth quarter.

Both government and private sector economists expect growth to pick up from this year.

A Reuters poll of private sector analysts estimated that growth would be 2.7 percent this year, 3.3 percent in 2005 and 3.4 percent in 2006.

The government is more optimistic. National treasury estimates released last week showed that the government expected the economy to grow 2.9 percent this year, 3.6 percent in 2005 and 4 percent in 2006.