Economy bounces back

20 August 2008

South Africa’s gross domestic product (GDP) growth was higher than expected in the second quarter, rising 4.9% quarter-on-quarter and 4.5% year-on-year, with mining and manufacturing bouncing back and agriculture also showing strength.

Releasing the latest figures on Tuesday, Statistics South Africa said that real quarterly GDP increased by 4.9% in the second quarter, compared to 2.1% growth in the first quarter.

Strong performers in the second quarter were agriculture (nearly 20% growth), mining (15.6%) and manufacturing (14.5%).

But the country’s wholesale, retail and motor trade sector (including hotels and restaurants) shrank by 2.2%, its first contraction since 2001, as the combined five percentage point increase in interest rates over the past two years took its toll on consumer spending.

Finance, real estate and business services were similarly affected, with growth in the sector slowing further, from 4.9% in the first quarter to 2.3% in the second quarter.

These two sectors – finance, real estate and business services, and wholesale, retail and motor trade – are among the three biggest in South Africa’s economy, accounting for 20.7% and 14% of GDP respectively in the second quarter. Manufacturing accounted for 15.9%.

Business Unity South Africa (Busa) said the data confirmed that a recession in South Africa was unlikely, although a more realistic appraisal of the state of the economy would only be possible once third- and fourth-quarter statistics became available.

Busa said in a statement on Tuesday that, while it saw the second-quarter growth as largely a rebound following the country’s electricity crisis in the first quarter, the figures indicated that South Africa’s overall growth outlook remained positive.

While 2008 would still be a tough year for businesses and consumers, Busa forecast economic growth of at least 3% for 2008 – well below the 5.1% South Africa achieved in 2007, but better than many have predicted in the context of a global economic slowdown.

Busa based its evaluation on the positive outlook for SA’s agricultural sector this year, improved reliability in the electricity supply, and the continued high level of capital investment in the country, especially the R500-billion investment in infrastructure the government is set to make over the next three years.

An improved outlook for international oil prices and inflation in the medium term also suggested that, though inflation could worsen in the months ahead, interest rates might have peaked. “If so, there is the potential for interest rates to begin to decline in about mid-2009,” the organisation said.

SAinfo reporter. Sources: