S. African GDP Expands 4.6% on Mining, Manufacturing (Update3)

South Africa’s economy grew at the fastest pace in seven quarters in the first three months of the year as record low interest rates triggered a rebound in consumer spending, while rising global demand fueled exports.

Gross domestic product rose an annualized 4.6 percent, compared with 3.2 percent in the previous three months, Statistics South Africa said in a report released today in Pretoria, the capital. The median estimate of 24 economists surveyed by Bloomberg was for growth of 4.3 percent.

South African mines and factories have raised output to meet rising international demand as the global financial crisis eases, pulling the economy out of its first recession in 17 years. Now, a revival in consumer spending, which accounts for two-thirds of expenditure, is adding to that growth. The retail, hotel and restaurants industry expanded 3.3 percent, the first gain in eight quarters, the statistics agency said.

“All the data was shaping up for a decent quarter,” said Rian le Roux, chief economist at Old Mutual Investment Group in Cape Town. “The recovery is clearly on the way. It has now spread to the last area that was struggling, which is retail, and it’s also good to see that agriculture recorded a positive growth rate.”

The rand traded at 7.9849 against the dollar at 4:39 p.m. in Johannesburg, from 7.9627 before the release of the growth data.

Manufacturing

Mining output surged an annualized 15.4 percent, in the first quarter, compared with a 4.6 percent expansion in the prior three months, the statistics office said. Manufacturing expanded 8.4 percent, down from 10.1 percent.

“This is the first time since the end of the recession that all sectors are showing positive growth,” Joe de Beer, a senior official at Statistics South Africa, said in an interview.

The agriculture industry expanded 3 percent in the first quarter, compared with a 7.6 percent contraction in the previous three months, the statistics office said. Finance and real estate expanded 2.5 percent, construction 2.1 percent and transport 2.4 percent.

“South Africa’s recovery is still characterized as one driven by growth in the rest of the world,” Razia Khan, head of Africa research at Standard Chartered Bank Plc in London, said in an e-mailed note. “As for the domestic economy, it’s a respectable-enough performance, but that is nothing to write home about.”

Unemployment

The economy entered recession in the final quarter of 2008 and returned to growth in the third quarter of last year. About 870,000 jobs were shed in 2009 and a further 171,000 in the first three months of this year, pushing the unemployment rate to 25.2 percent.

Respectable growth “doesn’t quite cut it when one looks at the rate of unemployment in South Africa and the extent of job losses the economy has faced,” Khan said.

The Reserve Bank cut its benchmark interest rate by half a percentage point to 6.5 percent on March 25, the lowest since the repurchase rate was introduced in 1999. The bank left the rate unchanged at its last meeting on May 13.

Vehicle sales increased for a fourth consecutive month in April, rising 26.6 percent from a year earlier, the National Association of Automobile Manufacturers of South Africa said on May 4. Manufacturing output, which accounts for 15 percent of the economy, gained an annual 6.3 percent in March, according to the statistics office.

Growth Forecasts

The International Monetary Fund said on May 19 it may raise its 2.6 percent growth forecast for South Africa “closer to 3 percent” following better-than-expected economic data. In the budget released on Feb. 17, the National Treasury forecast that the economy would grow 2.3 percent this year.

The recent acceleration in growth was due to “improving global demand, which has boosted commodity prices and exports, and support from countercyclical fiscal and monetary policies,” the Finance Ministry said in an e-mail. “A sustained expansion will result in a stronger growth rate for the economy than was projected at the time of the budget. However, slower growth in Europe emanating from the fiscal crisis in Greece and southern Europe, poses a potential risk.”

Nedbank Group Ltd. South Africa’s fourth largest bank, said it expected the economy to grow 3.1 percent this year, up from a previous estimate of 2.8 percent.

“Although the recovery is not only on track but gaining some momentum, it is coming off a low base,” the Johannesburg- based lender said in an e-mailed note. “The risk to the forecast remains on the downside, given an uncertain global outlook and a still vulnerable local consumer.”

--Editors: Philip Sanders, Ben Holland

Article by: Garth Theunissen and Mike Cohen - www.businessweek.com