South Africa Narrowly Misses Recession as GDP Gains 0.7%

  • Recovery masks deterioration in economy amid power shortage
  • Reserve Bank has little room to spur growth as prices rise

South Africa narrowly avoided a second recession in six years as manufacturing rebounded in the continent’s second-largest economy.

Gross domestic product increased an annualized 0.7 percent in the three months through September compared with the previous quarter, when it shrank 1.3 percent, the statistics office said in a report released on Tuesday in the capital, Pretoria. The median estimate of 18 economists surveyed by Bloomberg was expansion of 1 percent.

The rebound in output last quarter masks a deterioration in the economy this year triggered by power shortages and a slump in prices of platinum, copper and other commodities. The economy is forecast by the central bank to expand 1.4 percent this year, which would be the slowest pace since the 2009 recession.

“Things look very bleak going forward,” Elize Kruger, an economist at KADD Capital, said by phone from Johannesburg on Tuesday. “We just missed a technical recession and have nothing to be excited about today. It’s quite a bad outcome for the economy.”

The rand weakened as much as 0.6 percent to 14.1695 against the dollar after the data was released and was trading at 14.1131 as of 12:30 p.m. in Johannesburg, taking its decline this year to 18 percent. Yields on the government bond due December 2026 rose 3 basis points to 8.48 percent.

State-owned utility Eskom Holdings SOC Ltd. implemented 20 days of rolling blackouts in the third quarter, compared with 59 in the preceding three months, helping to support a rebound in factory output. Manufacturing, which makes up 13 percent of GDP, expanded an annualized 6.2 percent in the quarter.

“Manufacturing was really the key to the positive number and it was partly due to just base effects,” Kevin Lings, chief economist at Stanlib Asset Management, said by phone from Johannesburg. “The growth rate in manufacturing is certainly not sustainable. That means overall the economy remains under pressure and from our perspective will weaken into 2016.”

Inflation Pressure

Mining plunged 9.8 percent, one of the main reasons for the worse-than-expected growth rate in the quarter, according to Michael Manamela, executive manager for national accounts at the statistics office.

The decline was partly due to lower coal output as a result of “industrial action in some of the mines, but also the mining production declined due to lower demand from our main electricity generator,” he said in Pretoria.

While manufacturing expanded for the first time since the fourth quarter of 2014, three sectors are now in recession: agriculture, mining and electricity. Farming output plunged an annualized 12.6 percent in the third quarter as drought cut crops.

The central bank has little room to support growth as it struggles to keep inflation inside the 3 percent to 6 percent target. The Reserve Bank increased its benchmark repurchase rate by 25 basis points to 6.25 percent on Nov. 19, the second increase this year.

“The writing is on the wall that this economy is suffering really badly and the Reserve Bank can be thankful that today’s was not a negative number,” Kruger said.

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