S. Africa Avoids Recession as GDP Expands Faster Than Expected

(Bloomberg) -- South Africa averted a second recession in as many years after economic growth rebounded in the second quarter.

The economy grew an annualized 3.1% in the three months through June, compared with a revised 3.1% contraction in the first quarter, Statistics South Africa said Tuesday in the capital, Pretoria. The median estimate of 17 economists in a Bloomberg survey was 2.5%. It expanded 0.9% from a year earlier. The rand gained.

Key Insights

• Growth was largely due to statistical base effects and a stabilization in power supply, after the nation suffered the deepest blackouts in a decade in the first quarter, rather than a marked improvement in economy activity.
• The rebound may be short-lived with economic prospects in Africa’s most-industrialized economy dim amid stubbornly low business confidence and weak factory activity. The South African Reserve Bank forecasts gross domestic product expansion of 0.6% this year while the Bureau for Economic Research expects a 0.2% expansion.
• Economic growth may be undermined by a deterioration in public finances, which poses a risk to the country’s investment-grade credit rating, Lara Hodes, an economist at Investec Bank Ltd. said in a note before the data release.
• The second quarter’s expansion was led by a rebound in the mining industry, which grew by 14.4% compared with a contraction in the previous three months, while the finance industry grew by 4.1%. Farming contracted by 4.2%.

What Bloomberg’s Economist Says

“The reading was stronger than both our forecast of 2.2% as well as consensus 2.5%, and recouped all of the output lost in 1Q when power outages crippled economic output. We expect growth to slow to around 1.0-1.5% in 2H19 and going into 2020, but exogenous shocks may knock down this number.”

-- Mark Bohlund, economist

To contact the reporter on this story: Prinesha Naidoo in Johannesburg at pnaidoo7@bloomberg.net

To contact the editors responsible for this story: Rene Vollgraaff at rvollgraaff@bloomberg.net, Hilton Shone, Gordon Bell

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