SA narrowly misses recession as GDP gains 0.7%

While manufacturing expanded, agriculture, mining and electricity now in recession.

South Africa narrowly avoided a second recession in six years as manufacturing rebounded in the continent’s second-largest economy.

Gross domestic product increased an annualised 0.7% in the three months through September compared with the previous quarter, when it shrank 1.3%, the statistics office said in a report released on Tuesday in the capital, Pretoria. The median estimate of 18 economists surveyed by Bloomberg was expansion of 1%.

The rebound in output last quarter masks a deterioration in the economy this year triggered by power shortages and a slump in prices of platinum, copper and other commodities. The economy is forecast by the central bank to expand 1.4% this year, which would be the slowest pace since the 2009 recession.

“Things look very bleak going forward,” Elize Kruger, an economist at KADD Capital, said by phone from Johannesburg on Tuesday. “We just missed a technical recession and have nothing to be excited about today. It’s quite a bad outcome for the economy.”

The rand weakened as much as 0.6% to 14.1695 against the dollar after the data was released and was trading at 14.1131 as of 12:30 pm in Johannesburg, taking its decline this year to 18%. Yields on the government bond due December 2026 rose 3 basis points to 8.48%.

State-owned utility Eskom implemented 20 days of rolling blackouts in the third quarter, compared with 59 in the preceding three months, helping to support a rebound in factory output. Manufacturing, which makes up 13% of GDP, expanded an annualised 6.2% in the quarter.

“Manufacturing was really the key to the positive number and it was partly due to just base effects,” Kevin Lings, chief economist at Stanlib Asset Management, said by phone from Johannesburg. “The growth rate in manufacturing is certainly not sustainable. That means overall the economy remains under pressure and from our perspective will weaken into 2016.”

Inflation pressure

Mining plunged 9.8%, one of the main reasons for the worse-than-expected growth rate in the quarter, according to Michael Manamela, executive manager for national accounts at the statistics office.

The decline was partly due to lower coal output as a result of “industrial action in some of the mines, but also the mining production declined due to lower demand from our main electricity generator,” he said in Pretoria.

While manufacturing expanded for the first time since the fourth quarter of 2014, three sectors are now in recession: agriculture, mining and electricity. Farming output plunged an annualised 12.6% in the third quarter as drought cut crops.

The central bank has little room to support growth as it struggles to keep inflation inside the 3 percent to 6 percent target. The Reserve Bank increased its benchmark repurchase rate by 25 basis points to 6.25% on November 19, the second increase this year.

“The writing is on the wall that this economy is suffering really badly and the Reserve Bank can be thankful that today’s was not a negative number,” Kruger said.

©2015 Bloomberg News

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When, if ever, is the government going to be held accountable for the dire straits that the economy is in. All the do is blame those who are employers, those who have jobs, those who own businesses and are creating jobs, and those who are direct tax payers.

Pathetic!

Nominal GDP rose 0.7% while the inflation rate is 4.7%, so real GDP declined by 4%. Only inflation (manufactured by the Reserve Bank) keeps the numbers positive.

If you doubt that South Africa is in a economic depression, just compare the purchasing power of your salary to what it could buy in the year 2010.
The amount of violent protests across the country tells us that the masses don’t believe the GDP numbers. The hunger they feel is real.

The masses should evolve to the point where they swap the burning tire in road for a pen at the ballot box.

I think we are barely able to stay afloat, however considering that bigger economies like Canada, Brazil, Russia and Japan are in a technical recession would indicate there is still cause for optimism that commodities and agriculture (rain) might pick up in 2016? I guess we could be great full that the oil price is so low…The left side of my brain tells me this is short lived glory with recession coming into effect after Q1 2016

I wouldn’t compare our economy to economies where the population growth is non-existent to negative or where the GDP per capita is already on a high level. Apart from commodity prices and the drought, the elephant in the room is the rising interest rates from a very low base.

I think we are barely able to stay afloat, however considering that bigger economies like Canada, Brazil, Russia and Japan are in a technical recession would indicate there is still cause for optimism that commodities and agriculture (rain) might pick up in 2016? I guess we could be grateful that the oil price is so low…The left side of my brain tells me this is a short lived glory with recession coming into effect after Q1 2016…

End of comments.

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