SOUTH AFRICA ECONOMIC GROWTH RATCHETS HIGHER

UNCLAS PRETORIA 003528

SIPDIS

DEPT FOR AF/S/KGAITHER; AF/EPS; EB/IFD/OMA
USDOC FOR 4510/ITA/MAC/AME/OA/DIEMOND
TREASURY FOR OAISA/BARBER/WALKER/JEWELL
USTR FOR COLEMAN

E.O. 12958: N/A
TAGS: ECON EINV EFIN ETRD BEXP KTDB PGOV SF
SUBJECT: SOUTH AFRICA ECONOMIC GROWTH RATCHETS HIGHER



1. South Africa's economy grew faster in second quarter
2005, primarily because manufacturing grew 7.3 percent
South Africa's real gross domestic product (GDP) at market
prices on a quarter-on-quarter, seasonally annualized and
adjusted basis increased by 4.8 percent in second quarter
2005 compared to 3.5 percent the previous quarter.
Government officials would like to believe that last
quarter's 4.8% growth is a harbinger of better things to
come. While the 4.8 percent growth rate exceeded
expectations, the consensus forecast remains 4.4 percent
for the year. It looks as if the South African
government's initial 2005 GDP forecast of 4.3 percent is
well within reach. End Summary.

Manufacturing Recovery
--------------


2. South Africa's economy grew faster in second quarter
2005, primarily because manufacturing grew 7.3 percent
after having declined 1.9 percent the previous quarter.
South Africa's real gross domestic product (GDP) at market
prices on a quarter-on-quarter (q/q),seasonally
annualized and adjusted increased by 4.8 percent in second
quarter 2005 compared to 3.5 percent the previous quarter.
The 4.8 percent growth rate exceeded expectations, with
the consensus forecast at 4.4 percent.

Growth Broad-based
--------------


3. Though manufacturing led the charge by contributing
1.2 percent to second quarter growth, other sectors
contributed as follows: wholesale and retail trade, hotels
and restaurants, financial services, real estate, and
business services contributed 1.4 percent; transportation,
storage, and telecommunications contributed 0.6 percent);
agriculture, forestry and fishing contributed 0.3
percent); and general government services and personal
services contributed 0.3 percent. The seasonally adjusted
real value added by the non-agricultural industries
increased by 4.7 percent during second quarter following
an increase of 3.5 percent in the first quarter of 2005.

A Reflection of Faster Growth to Come?
--------------


4. Since the 3rd quarter 1998, the country has
experienced 27 quarters of continuous growth, however,
only five have exceeded 4.5% on a seasonally adjusted,
annualized basis. Growth in eleven quarters has exceeded
4.0%, and only two years (1996 and 2000) has exceeded 4.0%
growth. Government officials would like to believe that
last quarter's 4.8% growth is a harbinger of better things
to come. The government's stated objective for annual
growth is 6.0%. President Mbeki has created a ministerial
led task force to fine tune the government's growth
policy, headed by Deputy President Mlambo-Ngcuka. Mlambo-
Ngcuka and Trade and Industry Minister Mpahlwa were quick
to point to rising growth when addressing a visiting group
of prospective foreign investors. They would like to
believe that the government's public sector led growth
strategy is beginning to yield results. The real test
will be whether faster growth reduces the country's very
high rate of unemployment - those often problematic
statistics will not be available until September. While
the 4.8 percent growth rate exceeded expectations for
second quarter 2005, the consensus forecast remains 4.4
percent for the year. It looks as if the South African
government's initial 2005 GDP forecast of 4.3 percent is
well within reach.


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