South African economy at a three year low

South Africa’s economy grew at the slowest pace in more than six years as the first quarter grow reduced to an annualized 2.1 percent, which is down from 5.3 percent from the last three months of 2007, caused mainly due to the power shortage which drastically reduced output in the mining industry.

However on an unadjusted basis, South Africa’s economy grew by 4.0 percent when compared to the first quarter of last year.

Dennis Dykes, the chief economist at Nedbank Group Ltd , South Africa’s fourth-largest bank, said that the consumer side is still under duress from high interest rates and that the current cyclical downturn will remain through to next year.

The consumer side will remain under pressure given the higher interest rate environment and power problems are still a factor. We’re in a cyclical downturn that will extend into next year, added Mr Dykes.

Mining output fell by 22.1 percent, which is the biggest decline since 1967 whilst manufactory output fell by 1 percent.

Mining was affected by the lack of electricity, while production of both platinum and diamond was also cut due to flooding in the mines.

ArcelorMittal South Africa Ltd, South Africa’s largest steelmaker, were asked to reduce power consumption last quarter by Eskom, who supply 95 percent of the country’s power.

Eskom have indicated that the delayed expansion plans, and as a result, power shortages are likely to last up to seven years as 343 billion rand needs to be invested to build new power plants.

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