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Retail, factory rebound show SA economy may be past worst

| Economic factors

The South African economy’s contraction in the first quarter may have been the low point for the year, with consumer spending and factory production among indicators that have recovered in recent months.

Retail sales increased 4.5% in May from a year earlier, the strongest growth since January 2014, Statistics South Africa said in a report on Wednesday. Manufacturing, which accounts for about 13% of the economy, expanded by 4%, the best performance in 10 months, StatsSA said in a separate report.

“Given the data we have, the first quarter was probably the lowest point,” Mamello Matikinca, an economist at First National Bank, said by phone from Johannesburg on Wednesday. “While we will experience relatively weak growth in the next quarters, it won’t be as bad” as the three months through March.

The 1.2% contraction in Africa’s most industrialised economy in the first three months of 2016, caused by a slump in mining and farming output amid low mineral prices and the worst drought in more than a century, represents a low point, Reserve Deputy Bank Governor Daniel Mminele said on June 7.

While the risks of a technical recession are significant, the International Monetary Fund, which cut its 2016 growth forecast to 0.1% last week from 0.6%, said it expects an improvement in the economy starting in the second quarter.

“There has to be a turn at some point,” Christie Viljoen, an economist at KPMG, said by phone from Cape Town. “The economy can only deteriorate for so long, unless there is a structural issue like a war, then base effects have to start kicking in.”

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