The South African economy grew at the slowest growth rate in the first quarter of 2008 due to power shortage, rising inflation and declining consumer spending.
According to Statistics South Africa, the South African economy grew at the slowest growth rate in the first quarter of 2008 in last six years (2002-03 to 2007-08) due to power shortage that significantly affected the production of mining industry, as reported by Trading Market.
Statistics South Africa also said that the GDP (Gross Domestic Product) fell down to the lowest annual growth rate of 2.1% from 5.3% in the first three months of 2008. This was the first time since third quarter of 2001 when GDP slumped so low as compared to 4.9% recorded last year.
According to the industry experts, power shortage was largely responsible for slow growth in the country’s economy as mining and other industries had been facing power shortage since the initial of February 2008. Consequently, the production of platinum, gold and other natural minerals fell down that ultimately affected the whole economy of South Africa.
Moreover, the government decided to hike interest rates by four times on tax during 2007 as a result inflation increased and consumer spending on valuable products decreased. This also led to slow growth in South African economy. In addition, rising food and fuel prices took the inflation to a high level in South Africa during the first quarter of 2008. Hence, consumer spending was severely hampered and with that the whole economy of the country.
Furthermore, the industry experts have shown concern over current power crisis in South Africa and believe that manufacturing industry will be affected in future as they mainly rely on electricity for functioning. Interest rate is also likely to remain high in future because of direct pressure from spiraling inflation.
According to a Research Analyst at RNCOS, “The South African economy is growing at a slow pace and the current power crisis has made the situation even worse. The high interest rate is building pressure on businesses because consumer spending has fallen down. However, the slow growth rate in the South African economy might force the government to cut down in interest rates to increase the consumer spending, which in turn, give support to the economy.”
