SA likely to have avoided a recession in second quarter
Data on Tuesday (3 September 2019), is expected to confirm that SA has avoided a technical recession, with economists expecting a rebound in GDP in the second quarter.
An expansion of 2.5% is the consensus among 13 economists polled by Bloomberg. Stats SA is scheduled to publish the data on Tuesday.
“Having tracked real GDP throughout the second quarter’s high-frequency data releases, it has been clear for some time now that the economy would rebound and thus escape a technical recession. Sector-wise, we expect positive prints across the majority with mining and manufacturing leading much of the rebound,” Citigroup economist Gina Schoeman said in a note.
Mining production contracted 4.2% year on year in June, while seasonally adjusted mining production expanded 3.2% in the second quarter. The mining industry was knocked in the first quarter after Eskom implemented load shedding to as high as stage four on some occasions. Stage four necessitates a cut of 4,000MW from the national grid.
The manufacturing sector shrunk 3.2% in June, its biggest contraction in nine months, while growing 0.6% in the second quarter. Retail sales, however, rose 2.4% in June.
Investec economist Lara Hodes said: “Much of this expected lift would be attributable to statistical base effects and the stabilisation of electricity supply rather than to a sustainable turnaround in economic activity. The economy remains fragile, operating against a backdrop of subdued activity and persistently low business confidence, which continues to weigh heavily on future growth prospects.”
A contraction of 3.2% in first-quarter GDP growth ignited fears that the local economy could be headed for another recession, after it suffered this fate in the second quarter of 2018.
Moody’s Investors Service — the only credit ratings agency that has not downgraded SA below investment grade — warned that the country’s weak economic performance may see it slip into a technical recession this year.
The SA Reserve Bank revised its 2019 GDP growth forecast to 0.6% in July, down from its May forecast of 1.0%.
In July, the IMF forecast global growth at 3.2% for 2019, from a previous 3.3%, noting downside risks, which include the prolonged US-China trade war and disinflationary pressures. These risks have fuelled fears of a global recession, prompting financial markets to bet on the possibility that major central banks are on the brink of a monetary-policy easing cycle to boost economic activity.
The Absa manufacturing PMI for August is due on Tuesday, with slightly subdued activity predicted, after an acceleration to 52.1 points in July. “Prospects for the sector still remain tenuous. Muted local demand, coupled with suppressed international trade readings, underpinned by the ongoing trade dispute between China and the US and heightened geopolitical concerns continue to weigh on activity in this sector,” Hodes said.