South Africa likely to avoid recession amid string of positive data
New mining and manufacturing data published on Thursday lifted hopes that South Africa’s economy could avoid a recession, and even a ratings downgrades in December.
Reuters reported that the country’s manufacturing output increased more than expected in June – by 4.5% in June 2016 compared with June 2015.
StatsSA, which published the data, said the increase was mainly due to higher production in the following divisions:
- petroleum, chemical products, rubber and plastic products (15.4% and contributing 3.4 percentage points);
- wood and wood products, paper, publishing and printing (4.4% and contributing 0.6 of a percentage point); and
- food and beverages (2.0% and contributing 0.5 of a percentage point).
StatsSA also published data showing that mining production fell 2.5%, a smaller number than the 4% contraction forecast by a Reuters poll of economists.
“Today’s output figures support our view that the South African economy rebounded in Q2, thus avoiding a technical recession,” John Ashbourne, Africa specialist at Capital Economics, said in a note.
Reuters reported that the economy shrank 1.2% in the first three months of 2016 as major sectors of the economy contracted due to rising inflation, a battered currency, and a crippling drought.
The rand has since reversed its losses, rallying to 10-month highs against the dollar in recent sessions, and to a point where it has had a major contribution to South Africa regaining the title of the continent’s largest economy in nominal terms.
“The positives are [attributable] to the global background and the fact that the recent elections were free and fair,” Standard Bank economist Kim Silberman told SAnews on Thursday.
South Africa had held the position of the largest economy in dollar terms about two years ago.
“What you’re seeing is quite an optimistic view,” said Silberman.
Nigeria, said Silberman, is an oil-linked country, while South Africa’s drivers among others include gold – which is still around 10% of South Africa’s exports – which has been performing well.
“So far so good, it signifies faith that global investors have in the Reserve Bank,” she said.
Analysts however, warned the relief may be short lived. “During the second half of the year we expect risk aversion to come back. It’s a very uncertain economic environment and there is a chance the ratings agencies could flag policy direction after the election,” said Johannes Khoza, a senior economist at Nedbank.
“So we don’t expect the strength of the rand to be sustained into the second half of the year.”
And while the results of the recent municipal elections continues to feed positive sentiment back into the markets, the South African Reserve Bank forecasts zero growth for 2016, while unemployment still remains above 26%.
More on the economy in SA
Rand hits 10-month high vs the dollar – R13.35
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