South African Economy Rebounds as Power Outages Ease

By Nasreen Seria and Vernon Wessels

Aug. 19 (Bloomberg) -- South African economic growth rebounded to an annualized 4.9 percent in the second quarter as a power shortage that shut mines in January eased.

Gross domestic product climbed from 2.1 percent in the first three months of the year, Pretoria-based Statistics South Africa said in a report today. Growth was higher than the 4.2 percent median forecast of 16 economists surveyed by Bloomberg.

Mining and manufacturing output, which together account for about a fifth of the economy, increased as electricity supply stabilized, benefiting miners such as Anglo Platinum Holdings Ltd., the world's largest producer of the metal. Growth may slow again as six interest rate increases since June last year slash consumer spending on cars and furniture.

``It's not a sign of amazing strength, it's more a sign of returning to normal production,'' said Nicky Weimar, an economist at Nedbank Group Ltd., South Africa's fourth-largest bank. ``The true story is in the financial and retail sectors, which is showing the stress that consumers are under.''

The rand was at 7.8311 against the dollar as of 3:19 p.m. in Johannesburg from 7.7799 before the data was released.

Output in the retail, hotel and restaurant industries dropped an annualized 2.2 percent in the second quarter, after gaining 3.6 percent in the previous three months, the statistics office said. Growth in the finance and real estate industries slowed to 2.3 percent from 4.9 percent in the first quarter.

Rate Increases

The Reserve Bank increased its benchmark interest rate to 12 percent in June, curbing spending and cutting profits at companies such as JD Group Ltd., the country's biggest furniture retailer. Retail sales fell an annual 2.6 percent in June, the fourth straight monthly decline, the statistics office said on Aug. 13.

Growth may slow to 2.9 percent this year, down from 5.1 percent in 2007 and lower than the government's forecast of 4 percent, Weimar said.

``Even though we've probably reached the end of the domestic interest rate hiking cycle, domestic consumer demand growth is bound to continue moderating over the next few quarters as the lagged impact of higher interest rates takes full effect on consumer spending,'' Johan Rossouw, an economist at Vunani Securities, said in a note to clients.

Mining surged an annualized 15.6 percent in the second quarter, after plunging a revised 25.1 percent in the previous three months, the statistics office said. Manufacturing, which accounts for 16 percent of the economy, jumped 14.5 percent after dropping 1 percent in the first quarter.

Construction continued to boom, expanding 10.6 percent in the second quarter, as the government stepped up spending on roads and stadiums in preparation for the 2010 FIFA World Cup. Eskom Holdings Ltd., the state-owned electricity utility, is spending 343 billion rand ($44.3 billion) over the next five years to expand capacity.

Agriculture, which makes up 2.3 percent of the economy, surged an annualized 19.6 percent in the second quarter after expanding 17.2 percent in the previous three months, the statistics office said.

To contact the reporters on this story: Nasreen Seria in Johannesburg nseria@bloomberg.net; Vernon Wessels in Johannesburg at vwessels@bloomberg.net.