South Africa dodges recession

26th August 2014, Comments 0 comments

South Africa narrowly avoided slipping into recession in the first half of the year, thanks in part to election-time government spending, official data showed on Tuesday.

Africa's most advanced economy had shrunk in the first quarter of the year by 0.6 percent, amid a mining strike that halted platinum production for five months.

But the continent's second-largest economy -- after the Nigerian economy -- managed to stumbled into positive territory in the second quarter, growing by a modest 0.6 percent.

An economy is widely considered to be in recession after two quarters running of negative growth.

Growth from April to June was boosted by government spending, amid a May election in which the ruling African National Congress and President Jacob Zuma returned to power.

During the quarter the "general government services" were worth 140 billion rand ($13 billion) or 17 percent of the economy, almost as much as the manufacturing and mining sectors combined.

For the rest of the economy, the picture was bleak.

A major negative contributor was the platinum sector, which suffered a five-month strike that only ended in June. But the affects were felt across the economy.

"The bigger picture is that the economy remains very weak," said Shilan Shah of Capital Economics.

"Looking ahead, there is little reason to expect a sharp turnaround in performance over the coming quarters."

There are growing concerns that what began labour disputes in the mining, automotive and manufacturing sectors may be spilling over to create more general economic malaise.

"Obviously the weakness has started to spill over into the consumer sectors and services industry," says Nicky Weimar, senior economist at Nedbank in Johannesburg.

"The only thing that really prevented a decline, and helped us dodge a technical recession narrowly, is the fact that you've had some acceleration in government services," she said.

- Dodge a bullet -

Still, the avoidance of a recession is welcome news for a government unable meaningfully to tackle high unemployment, high inflation and vast poverty and inequality.

South Africa is still recovering from the 2008 recession prompted by the global financial crisis, and could ill afford more tumult.

The country has recently been roiled by a rumbling banking crisis which has resulted in one lender, African Bank, being bailed out and the country's five biggest banks downgraded by credit ratings agencies.

There are concerns that South Africa's own sovereign credit rating could soon be at risk of downgrade, a move that would put pressure on the rand and could push up the cost of borrowing.

The South African Reserve Bank has forecast growth will pick up in the second half of the year to reach 1.7 percent.

But the central bank has been forced to raise interest rates to curb inflation, a measure that may also serve to slow the economy.

For some the bank's forecast now looks optimistic.

"We continue to expect full-year GDP growth of 1.5 percent in 2014, although the weakness of Q2 means that risks to this forecast lie firmly on the downside," said Shah.


© 2014 AFP

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