S.Africa economic growth slows on power cuts

PRETORIA (Reuters) - South Africa's economic growth eased to a 6-1/2 year low in the first quarter of 2008, stung by a crippling power crisis and slowing demand.

Statistics South Africa said on Tuesday first quarter growth slowed to 2.1 percent on a seasonally adjusted and annualized basis -- its lowest level since the third quarter of 2001 -- from 5.3 percent in the fourth quarter of last year.

The number was well below a Reuters poll consensus of 2.4 percent and creates a dilemma for a central bank trying to tackle soaring inflation.

The Reserve Bank has raised its repo rate by 450 basis points to 11.5 percent since June 2006, but inflation keeps surging.

While the weak growth data is unlikely to stop another increase when the policy committee meets on June 11-12 following hawkish comments from bank Governor Tito Mboweni, it does raise concern about the impact of hikes on already waning momentum in the economy.

Mining and manufacturing were the main contributors to the slower growth.

"There is definitely a slowdown in the economy ... the two industries that constrained growth (the most) were mining and quarrying, and manufacturing," said Joe de Beer, executive manager for national accounts at Stats S.A.

Mining output fell by 22.1 percent in the quarter -- its lowest growth since the second quarter of 1967 -- largely due to electricity shortages that forced mines to halt production for 5 days in January.

Utility Eskom is battling to meet demand for power in Africa's biggest economy and has demanded nation-wide energy savings to prevent blackouts.

The mining industry is still not back to full power supply.

"It (growth) is certainly worse than the market was expecting," said Jeff Gable, head of research at ABSA Capital.

"It shows a very clear sign of the electricity supply crisis -- you see that in the mining figures (and) we're also seeing some impact of interest rate (increases)."

BUILDING BOOM

Stats S.A. said manufacturing production contracted by 1.0 percent, partly on base effects after growing by 8.2 percent in the last quarter of 2007, but showing strain on easing demand.

Others sector of the economy are also under pressure.

Annualized new vehicles sales have been falling for more than a year, and retail sales fell by 1.7 percent year-on-year in March.

However, targeted CPIX inflation remains on the boil, hitting 10.1 percent year-on-year in March, way outside the 3 to 6 percent target.

April inflation data is scheduled for release on Wednesday.

The rand extended losses after Tuesday's data, weakening 1 percent on the dollar to a one-month low of 7.7850 before recovering slightly.

Stats S.A. said the economy grew by 4.0 percent on an unadjusted basis compared to the first quarter of 2007, compared to 4.6 percent in the previous quarter.

Construction remained the star performer, expanding 14.9 percent quarter-on-quarter, while growth in finance, real estate and business services slowed to 4.9 percent.

Construction is booming in South Africa as the country builds to prepare for hosting the 2010 soccer World Cup and with the government spending billions of dollars on infrastructure.

Analysts said growth for the year was expected to be significantly slower than the 5.1 percent achieved in 2007, but it was likely to improve from the first quarter low as the energy crisis eased.

"Economic growth should pick up somewhat in the rest of the year, but 2008 is unlikely to average more than 3.8 percent," Investec economist Annabel Bishop said.

(Additional reporting by Phamza Macanda, editing by David Christian-Edwards)