World Economy

South Africa Recession Fears Fade as GDP Grows 3.3%

South Africa Recession Fears Fade as GDP Grows 3.3%South Africa Recession Fears Fade as GDP Grows 3.3%

South Africa’s economy avoided a second recession in seven years as mining and factory output rebounded.

Gross domestic product rose an annualized 3.3% in the second quarter, compared with a 1.2% contraction the previous three months, the statistics office said in a report released on Tuesday in the capital, Pretoria. The median of 19 economist estimates compiled by Bloomberg was for 2.6% growth. The economy expanded 0.6% from a year ago.

Political turmoil, fueled by reports that Finance Minister Pravin Gordhan may be arrested and statements by African National Congress officials that some of the Reserve Bank’s powers should be reconsidered, may limit the recovery in the second half of the year.

While factory output and retail sales expanded in the three months through June, the purchasing managers’ index fell below the neutral level of 50 last month, indicating future contraction in the manufacturing industry, and business confidence, remains close to a 13-year low.

The strong growth number “potentially won’t be sustained,” Manisha Morar, an economist at ETM Analytics, said by phone from Johannesburg. “Underlying drivers of economic growth remain particularly weak.”

Manufacturing, which accounts for about 13% of the economy, expanded an annualized 8.1% compared with the previous quarter and mining output increased by 11.8%, the statistics office said. Agriculture contracted by an annualized 0.8%, the sixth consecutive quarter of decline.

The statistics office took over the publication of expenditure-side GDP data from the central bank this year. Gross domestic expenditure expanded an annualized 3.4% in the second quarter after contracting 1.2% in the previous three months. Household spending increased 1% and gross fixed capital formation decreased by 4.6%.

Low commodity prices, the worst drought in more than a century and weak export demand have weighed on Africa’s most-industrialized economy and it will probably not expand at all this year, according to the central bank. That complicates the task of the government seeking to reduce a 27% jobless rate and stave off a downgrade to junk by credit-rating companies that have said slow growth is a risk for the nation’s creditworthiness.

The Reserve Bank left its benchmark repurchase rate unchanged at its past two meetings after increasing it by 125 basis points to 7% since July last year as it sought to steer inflation back toward its 3% to 6% target band.

While the central bank said last month the rand’s gains provides a cushion for policy, the currency has lost almost 6% against the dollar since the first reports on Aug. 22 that Gordhan was summoned by police in relation to a unit set up in the South African Revenue Service that allegedly spied on politicians when he headed the tax agency between 1999 and 2009.