South Africa May Dodge a Recession But the Economy Is Still Weak

(Bloomberg) --

South Africa may avert a second recession in consecutive years, but economic growth prospects remain dim.

Monthly data was slightly better in the second quarter following a 3.2% annualized quarter-on-quarter contraction in gross domestic product in the three months through March. Retail sales were the best performer as its growth exceeded 2% every month in the period, data from Statistics South Africa showed on Wednesday.

While mining output contracted year-on-year every month in the quarter, it rose 14.6% on a quarter-on-quarter seasonally adjusted basis, the measure used to calculate GDP, and should make a positive contribution to economic growth, Lara Hodes, an economist at Investec Bank Ltd., said in a note last week. Trade, under which retail sales is classified, manufacturing and mining production together make up around 40% of GDP.

The statistics office is scheduled to publish GDP data for the second quarter on Sept. 3. FirstRand Ltd.’s Rand Merchant Bank unit said in a note the quarterly growth rate was likely to be 2.4%.

Last month’s interest-rate cut could provide some stimulus for the rest of the year. While the Reserve Bank said GDP probably rebounded in the second quarter, its forecast of 0.6% will be the slowest full-year growth since 2016.

What Bloomberg’s Economist Says

“The high-frequency data suggest a gradual recovery from the sharp economic contraction in 1Q, with growth remaining below 2% quarter-on-quarter. The weak growth is likely to see some MPC members voting for another rate cut in September or November, but the weaker rand is likely to push up the Reserve Bank’s 2020 and 2021 inflation forecasts and prevent further easing.”

--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, Vernon Wessels

©2019 Bloomberg L.P.