South African GDP grew more than expected in the second quarter thanks to a recovery in mining and manufacturing, official data showed on Tuesday, in a reprieve for President Cyril Ramaphosa as the economy looks set to dodge recession this year.
After a downturn in the first half of 2018 when farming plunged, the economy has struggled to regain momentum, posting a shock contraction in the first quarter of this year.
Analysts said while the second-quarter GDP print could see South Africa avoid recession in 2019, it was not enough to stop credit rating downgrades linked to debt issues including bailouts for state power utility Eskom.
“It’s a great relief. A huge positive, but in reality it won’t do much for the credit rating situation. That’s more about debt,” said Wayne McCurrie, portfolio manager at FNB Wealth and Investments.
The rand extended gains after the data, firming more than 0.5% to a session high of 15.1125.
GDP growth in the three months to June was 3.1%, after a revised contraction of 3.1% in the first quarter, Statistics South Africa said. Economists polled by Reuters had predicted an expansion of 2.4% for the quarter.
The second-quarter growth was the highest since the fourth quarter of 2017. Year-on year GDP growth was 0.9% compared with zero previously.
The data showed mining output grew by 14.4% in the second quarter, after declining by 10.8% previously. Manufacturing output rose 2.1%, rebounding after declining 8.8% in the first quarter.
“There was a strong rebound in iron prices in the months leading to this quarter … and remember with mining in the first quarter there were challenges with electricity supply and those have eased a bit,” said Mike Manamela, chief director for national accounts at the statistics office.
Growth in Africa’s most industrialised economy hinges heavily on saving power firm Eskom, which is drowning in debt. At the start of the year, it implemented power outages that triggered a slowdown across most sectors in the first quarter.
Fixing Eskom, which supplies more than 90% of the power in South Africa, is one of the biggest challenges Ramaphosa faces.
It is regularly cited by ratings agencies as one of the main threats to South Africa’s investment-grade credit rating status and economic growth prospects.
Moody’s, the last of the three big international ratings agencies to keep South African debt at investment grade, said in July that government’s proposal to provide additional financial support to Eskom was “credit negative”.
The government said it would give Eskom R59 billion ($3.87 billion) of additional financial support over the next two years, on top of an already-promised bailout of R230 billion spread over the next decade.
“We could avoid a recession this year with even zero growth in the next quarter,” said Isaah Mhlanga, chief economist at Alexander Forbes.
“But there’s absolutely no room for Ramaphosa to manoeuvre. The macroeconomic fundamentals are still very weak.”
The IMF has warned that South Africa’s public debt, forecast at 55% of GDP in February by Treasury but likely to be revised upwards at the October mini-budget, is reaching uncomfortable levels.