Reuters

 
ECONOMIC growth braked sharply in the fourth quarter, held back by contraction in the mining and manufacturing sectors, but analysts still expect interest rates to remain steady this year.

The economy grew by 3,3% on a seasonally adjusted and annualised basis from 4,2% in the third quarter, Statistics SA said today. A Reuters poll of economists had forecast GDP increasing by 4%.

The slowdown was mainly due to a sharp 4,5% contraction in the mining sector, which accounts for 6,3% of the economy, and a small 0,3% contraction in manufacturing, which accounts for 16,4%.

Analysts said this reflected the negative impact of the strong rand on those sectors, which are largely export-based.

The rand depreciated modestly last year against the dollar, but that put few dents into three straight years of dramatic gains. It was trading around R6,1745 against the dollar, about 5,2% firmer so far this year against the US currency.

"I think it underlines the two-speed nature of the economy, where you’ve got the supply sector affected by the strong currency and the demand sector which has been fuelled by lower interest rates," said Colen Garrow, economist at Brait.

"In terms of where this leaves the markets, my feeling is foreigners will still be interested in acquiring South African assets because the economy is trending stronger. It suggests there is no need to change interest rates."

The Reserve Bank slashed its main repo rate by 6,5 percentage points to 7% between 2003 and 2005.

That pushed prime lending rates to 10,5% — their lowest level in more than two decades — fuelling spending which is driving economic growth.

On an unadjusted basis, the economy grew by 4,5% compared to the fourth quarter of 2004, versus 4,9% in the third quarter and forecasts for a 4,6% increase.

Overall, the economy grew by 4,9% from 4,5% in 2004.