SA avoids recession as GDP expands faster than expected

Manufacturing

South Africa's economy escaped a recession by growing strongly in the second quarter, preliminary figures from Statistics South Africa showed on Tuesday.

Economists polled by Reuters had predicted an expansion of 2.4% quarter-on-quarter. Year-on year GDP growth was 0.9% compared with zero previously.

The largest positive contributors to growth in GDP in the second quarter were mining, finance, trade and general government services, the statistical office said.

He added that there were also smaller table and wine grapes crops, which had an impact on growth in the sector.

Mining was the strongest performer in the second quarter, expanding by 14,4%.

The trade, catering and accommodation industries increased by 3.9%. In the second quarter it did not happen, meaning increased production in all industries.

Finance, real estate and business services saw an increase of 4.1 percent.

Growth was largely due to statistical base effects and a stabilisation in power supply, after the nation suffered the deepest blackouts in a decade in the first quarter, rather than a marked improvement in economy activity.

The 3.1 percent growth means the economy avoided falling into a recession after it contracted by revised 3.1 percent in the first quarter of the year.

"The outcomes needed from the possible implementation the latest National Treasury growth strategy have the potential to either enhance or reduce policy certainty. It is essential now to provide the necessary leadership and to forge sufficient consensus around what needs to be urgently done to strengthen the South African economy", Parsons explained.

Nedbank expected more improvement in mining and manufacturing, but the upside will be constrained by softer global demand and stagnant commodity prices.

Gross fixed capital formation (fixed investment) increased by 6,1% in the second quarter, driven mostly by increased spending on machinery and transport equipment.

"Given the underlying lack of confidence and subdued growth prospects, expansionary fixed investment activity is not expected to recover this year, although spending on modernisation and automation is likely to continue". Economists had forecast 0.7 percent growth.

This lent to the International Monetary Fund (IMF) lowering South Africa's projected GDP growth rate for 2019 from 1.4% to 1.2%.

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