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SA may dodge a recession but the economy is still weak

Aug 15 2019 10:48
Prinesha Naidoo

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% annualised 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.

Potential Rebound

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 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 September 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

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