South Africa to Avoid Recession as Growth Dips, Gordhan Says

  • Country working to avoid a credit downgrade to junk status
  • Government growth estimate unlikely to remain at 0.9%

South Africa’s economy will probably avoid a recession this year and the government is working with business and labor unions to avert a credit-rating downgrade to junk, Finance Minister Pravin Gordhan said.

“We are unlikely to remain at 0.9” percent this year, Gordhan told reporters in Johannesburg, referring to the National Treasury’s economic-growth forecast given in February. “What we are confident about is that we are not going to get into a recession.”

Africa’s most-industrialized economy contracted by 1.2 percent in the three months through March as farming and mining output declined and the nation’s central bank has projected zero growth for 2016. The slow growth puts the sovereign investment-grade credit rating under threat, with S&P Global Ratings citing weak expansion as a key risk for a potential downgrade. Fitch Ratings cut the local-currency rating one step to BBB- last week.

“The world is in a low-growth trap, Africa is in a low-growth trap, and so are we at this point in time,” Gordhan said. “We will remain in a low-growth trap unless we begin to do things differently.”

The government plans to keep working with business leaders and labor groups in the second half of the year to boost the economy and jobs after cooperation since January helped avoid a sovereign downgrade in June. S&P, which has a negative outlook on the lowest investment grade BBB- rating for South Africa, is due to give its next assessment in December.

“If we start doing the right things and contributing to economic growth and confidence building in our economy, we can do better than we are doing now,” Gordhan said.

The rand weakened 0.5 percent to 14.4291 per dollar at 2:45 p.m. in Johannesburg on Tuesday. Yields on rand-denominated government bonds due December 2026 fell three basis points to 8.75 percent.

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