Rand firms on higher than expected economic growth

South Africa’s economy grew faster than expected on improved output in the finance and manufacturing industries. The rand pared earlier losses, and bond yields retreated from session highs after the data. 

Gross domestic product expanded 0.6% in the three months through June, compared with growth of 0.4% in the prior quarter, Statistics South Africa said in a report released in the capital, Pretoria, on Tuesday.

That beat the 0.3% median estimate of 15 economists in a Bloomberg survey.

The South African currency traded 0.5% weaker at R19.17 per dollar by 12:42 p.m. in Johannesburg after declining as much as 1% earlier.

The yield on 2032 government bonds was at 11.20% after rising as high as 11.22% before the data was released.

Finance and manufacturing, which make up more than a third of GDP, were the main drivers of the growth, supporting the view that many big businesses are adapting and insulating themselves from the nation’s chronic shortage of electricity.

That was evident in the sharp rise in investment in imported machinery and equipment – mostly for electricity infrastructure — supported by increased sales of locally produced electric motors, generators and special purpose machinery, which drove gross fixed capital formation higher. 

Fixed-investment spending rose 3.9% from the previous quarter. Overall economic output increased 1.6% from a year earlier.

Still, without the frequent power outages caused by Eskom’s inability to meet demand from its old and poorly maintained generating plants and logistic constraints at state-owned port and rail operator Transnet, the economy would be growing at a faster pace.

The Reserve Bank predicts electricity rationing will shave 2 percentage points off economic growth this year, and a study by consultancy GAIN Group forecasts inefficiencies at Transnet will cost the economy RT353 billion, equivalent to 4.9% of GDP.

That means economic growth for 2023 could have been much higher, the consultancy said in the report. The central bank expects the economy to expand 0.4% this year, while the International Monetary Fund predicts 0.3% growth.

The anaemic economic growth rate is affecting the National Treasury’s revenue projections and budget deficit forecasts.

Household spending, which comprises about two-thirds of GDP, declined 0.3% in the second quarter. Expenditure is likely to face further pressure because of rising gasoline prices and high interest rates that are at a level last seen 14 years ago during the global financial crisis.


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