JOHANNESBURG – South Africa is set to avoid slipping into a technical recession this year following surprise improvements in mining and manufacturing output, although the economy remains under pressure due to recent credit downgrades to junk.
The economy contracted 0.3 percent in the final quarter of 2016 and a second consecutive contraction would have pushed the economy into recession for the first time since the global finiancial crisis of 2009.
Mining output beat expectations of a 4.3 percent increase, with demand from China and higher commodity prices globally propelling the sector’s output to a two-year high.
While growth in manufacturing was modest, at 0.3 percent year-on-year in March, after shrinking by 3.7 percent in February, it was comfortably wide of market expectations of a 2 percent contraction.
“The improved mining, growth in agriculture and the improved vehicle sales should keep first quarter GDP growth in positive territory,” senior economist at Nedbank Nicky Weimar said.
Treasury has said it expects the economy to expand by 1.3 percent this year. On Tuesday the International Monetary Fund said it saw South Africa’s growth at 0.8 percent in 2017.
The decision in April by S&P Global Ratings and Fitch to downgrade South Africa to subinvestment after President Jacob Zuma removed Pravin Gordhan as finance minister had increased the risk of recession.
The rand plunged about 12 percent in the wake of the cabinet changes, prompting the central bank to put off possible interest rate cuts due to a weaker currency stoking inflation. The downgrade has also limited already dire levels of investment.
But the steep jump in mining output in March, by 15.5 percent according to Statistics South Africa data on Thursday, combined with a surprise rebound in manufacturing could see growth remain in the black, economists said.
“That will be a sizeable contribution to quarter one growth especially if we expect the agricultural sector to start to contribute positively,” said Elize Kruger of NKC African Economics, who forecasts first quarter growth at 1 percent.
Nedbank’s Weimar said the the downgrades to junk were the big negative.