Manufacturing, Mining Help South Africa Avoid Recession, Growth Not Expected To Last

Written by Dana Sanchez

Mining, manufacturing and the rand helped boost South Africa’s economy for the first time in a while, giving some breathing room to a government being torn apart from within.

Despite doom-and-gloom predictions by economists, this bit of good news for South Africa’s economy augments recent reports that South Africa regained its place as the continent’s biggest economy.

South Africa’s economy grew 3.3 percent quarter-on-quarter and 0.6 percent year-on-year in the second quarter of 2016, The Cable reported. That’s its fastest quarter-on-quarter growth in economic activity since the fourth quarter of 2014.

Exports increased by 18 percent while imports decreased by 5.1 percent, according to data from Statistics South Africa.

Economic growth in South Africa in the second quarter helped the country escape a predicted recession for the second time in seven years, Econo Times reported.

The 3.3 percent GDP growth in the second quarter compares with a 1.2 percent contraction the previous three months, according to Statistics SA. This exceeded the median prediction of 19 economist estimates compiled by Bloomberg, which called for 2.6 percent growth. The economy has expanded 0.6 percent from a year ago.

Africa’s most-industrialized economy wasn’t expected to expand at all in 2016, weighed down by low commodity prices, the worst drought in more than 100 years and weak export demand, the central bank said, according to Bloomberg.

South Africa’s second quarter economic performance was a percentage point better than forecasts in a Reuters poll of economists.

Manufacturing, which accounts for about 13 percent of the economy, expanded 8.1 percent and mining by 11.8 percent, the statistics office said. Agriculture contracted by an annualized 0.8 percent — the sixth consecutive quarter of decline.

Real estate and business services increased by 2.9 percent and contributed 0.6 of a percentage point to GDP growth. Also contracting in the second quarter were agriculture, forestry and fishing, electricity, gas and water sectors.

Strong growth was surprising for some; other expected it

The surprisingly strong growth “mostly reflects a bounce back following the disaster of Q1,” said Capital Economics Africa economist John Ashbourne, according to Reuters. South Africa’s year-on-year growth remains weak and the economy will likely slow in the second half of 2016.

The improvement in economic activity over the second quarter was widely anticipated, but few expect this pace to be sustained over the next 12 to 18 months, said Johannes Khoza and Nicky Weimar, economists at Nedbank.

The rand has been under pressure due to a police investigation into Finance Minister Pravin Gordhan. It rose to its firmest level in about two weeks after Tuesday’s data, trading up 2.5 percent at 14.0200 per dollar.

The currency has lost almost 6 percent against the dollar since the first reports on Aug. 22 that Gordhan was being investigated on allegations of spying on politicians when he headed the Revenue Service agency between 1999 and 2009.

For the Reserve Bank “the biggest question remains, what’s most likely to happen to the rand,” Weimar told Bloomberg. “Will the rand be able to withstand the pressures we are anticipating during the remainder of this year which involves the continuation of the political turmoil we’ve had flare up more recently?”

Political uncertainty and interference could trigger ratings downgrades, said credit agencies Fitch and Standard & Poor’s, which both rate South Africa one notch above non-investment grade.

The strong growth “potentially won’t be sustained,” said Manisha Morar, an economist at ETM Analytics, in a phone interview with Bloomberg. “Underlying drivers of economic growth remain particularly weak.”