Hope SA could fend off recession amid data surprise

Johannesburg - South Africa's manufacturing output rose more than expected in June, while mining production shrank at a slower rate than market estimates, raising hopes the economy could fend off a recession and ratings downgrades to junk later in the year.

Manufacturing output rose 4.5% year-on-year in June and 0.7% on a monthly basis, while mining production fell 2.5%, smaller 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.

The economy shrank 1.2% in the first three months of 2016 as major sectors of the economy contracted; battered by slack global demand, a slide in the currency that has stoked inflation, and a searing drought.

Relief may be short lived

Analysts said the surprisingly positive data, along with a recent rally by the rand, could ease the strain on industry as well as consumers, but warned the relief may be short lived.

The rand has gained about 5% against the dollar in the last week to a 10-month high following local government elections that saw opposition parties make inroads into the ruling African National Congress' majority.

"During the second half of the year we expect risk aversion to come back," said Johannes Khoza, a senior economist at Nedbank.

"It's a very uncertain economic environment and there is a chance the ratings agencies could flag policy direction after the election."

Khoza said the bank doesn't expect the strength of the rand to be sustained into the second half of the year.