Nov. 27 (Bloomberg) -- South Africa's economic growth unexpectedly accelerated to an annualized 4.7 percent in the third quarter as a construction boom helped to offset higher interest rates.

Growth in gross domestic product climbed from a revised 4.4 percent in the second quarter, Pretoria-based Statistics South Africa said in a statement today. The economy was expected to expand 4.1 percent, according to the median estimate of 19 economists surveyed by Bloomberg.

The government's 482 billion-rand ($68 billion) infrastructure spending program has fueled construction, while companies are taking out more loans to expand capacity, benefiting financial services, the biggest industry in the economy with a contribution of 20 percent. That offset a recession in manufacturing as six interest rate increases hurt consumer spending and a stronger rand undermined exports.

``It's very positive to see growth remaining so robust,'' said Russel Lamberti, an economist at Econometrix Treasury Management in Johannesburg. ``But I'm not happy with the manufacturing sector. We are not creating the kind of growth we want to see in this economy. The financial services sector doesn't create the low-skilled jobs'' needed to cut unemployment.

World Cup

The government is betting that increased spending to expand railways, power supplies and stadiums in preparation for the 2010 FIFA World Cup will help boost economic growth to 6 percent by 2010. That is needed to slash the unemployment rate to 14 percent by 2014, from the current 25.5 percent, the highest of 61 countries tracked by Bloomberg.

The central bank has increased its benchmark interest rate six times in the 14 months through August to curb inflation. That has crimped consumer spending on cars and furniture, while the rand's 12 percent gain against the dollar in the year through Sept. 30 undermined manufactured exports.

Manufacturing, which makes up 16 percent of the economy, fell an annualized 2.5 percent last quarter after declining 0.1 percent in the previous three months, the statistics office said.

Growth in the retail trade, hotels and restaurants industry slowed to an annualized 4.5 percent last quarter from 4.7 percent in the previous three months, the statistics office said.

`Household Sector'

``The household sector is slowing down, but it's the businesses and commercial side that is pulling things up,'' Kedibone Mokone, manager of GDP statistics, told journalists in Pretoria today. ``Excluding the financial services, the growth rate would have been only 3 percent'' in the third quarter.

The higher-than-expected growth figures give the Reserve Bank room to increase interest rates again next week, said Razia Khan, head of Africa economic research at Standard Chartered Plc in London. The bank last raised its key rate by half a percentage point to 10.5 percent on Oct. 11, the third increase this year.

``Overall, GDP remains firm, and with price stability still the main priority, the way is open for the Reserve Bank to tighten interest rates a further 50 basis points next week,'' Khan said in an e-mailed note to clients today.

Construction and financial services helped to ease the impact of higher interest rates, keeping the growth rate above 4 percent for an 11th consecutive quarter.

Financial services expanded an annualized 12.1 percent last quarter, up from 10.4 percent in the previous three months, the statistics office said. Construction surged an annualized 14.7 percent from 11.8 percent.

Mining rebounded last quarter from a recession, helping to boost the overall growth rate. Production in the sector, which makes up 2.2 percent of the economy, rose an annualized 4 percent in the third quarter, after declining 3.1 percent in the previous three months, the statistics office said.

Growth in agriculture slowed to an annualized 0.5 percent from 4.4 percent in the second quarter.

Today's data may prompt economists to revise higher their economic growth forecasts for the year. The statistics office revised last year's growth rate to 5.4 percent, the fastest since 1981, from a previous estimate of 5 percent. It also revised the 2005 growth rate to 5 percent from 5.1 percent.

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net

Last Updated: November 27, 2007 09:30 EST