/ 26 February 2008

South Africa records strong growth for 2007

South Africa’s economic growth jumped unexpectedly in the fourth quarter of 2007, keeping expansion for the year near a two-decade record at 5,1% as buoyant corporates outweighed slower consumer spending.

Africa’s biggest economy has remained resilient despite higher interest rates, although growth is likely to slow in 2008 when power cuts add to a further easing in household demand.

Statistics South Africa (Stats SA) said on Tuesday quarter-on-quarter annualised growth climbed to 5,3% from an upwardly revised 4,8%, lifting the number for the year to just off the more than two-decade high of 5,4% for 2006.

”We certainly did not expect such a high number,” said Russell Lamberti, economist at independent market analysts ETM.

”From a broader perspective it looks as though the investment spending drive is proving to be a strong driver of growth,” he said, referring to huge government capital expenditure.

Economists had predicted a slowdown to 4,3% on growing evidence a series of interest rate hikes since June 2006 was crimping spending.

Retail sales have declined and new motor vehicle sales have been weak.

But Stats SA said the manufacturing sector rebounded from a strike-affected slowdown in the third quarter, while agriculture jumped and construction growth stayed in double-digits.

Power cuts

Growth in finance and real estate — the biggest economic sector at 20,4% of GDP — eased slightly, as did wholesale and retail sales, reflecting the pressure on households.

”We can see that there is an impact in the sectors that affected households [the trades and residential construction], but the corporate sector in still going strong,” said Kedibone Mokone, Stats SA manager for GDP.

The Reserve Bank left its repo rate at 11% last month, citing signs of slowing growth, after raising it 400 basis points in 18 months.

Growth in 2008 may not match the strong performance of the past four years, analysts say.

Ageing infrastructure and waning capacity has left electricity utility Eskom unable to meet demand, resulting in crippling blackouts that have hit businesses and households hard.

The world’s biggest platinum mines and key gold mines were forced to halt production for five days in January after Eskom cut supply to protect the grid. Output is still not up to full strength.

The crisis will slash mining growth in the first quarter of 2008, but the impact should be felt far wider. All energy consumers have been asked to cut demand for the next five years while Eskom moves to rebuild capacity.

”The data is incredibly upbeat overall, but questions are still going to be asked about how much deterioration we should expect in [quarter one of] 2008, when we see the worst of the energy crisis impacting on growth figures,” Razia Kahn, regional head of research for Africa at Standard Chartered, said.

The Treasury has forecast 4% growth in 2008 — a forecast some analysts see as too optimistic. — Reuters