SA avoids recession as GDP expands faster than expected

South Africa averted a second recession in as many years after economic growth rebounded in the second quarter.

The economy grew an annualised 3.1% in the three months to June, compared to a revised 3.1% contraction in the first quarter, Statistics South Africa said on Tuesday. The median estimate of 17 economists in a Bloomberg survey was 2.5%. It expanded 0.9% from a year earlier. The rand gained.

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 rebound may be short-lived with economic prospects dim amid stubbornly low business confidence and weak factory activity. The South African Reserve Bank forecasts GDP expansion of 0.6% this year while the Bureau for Economic Research expects a 0.2% expansion.

Economic growth may be undermined by a deterioration in public finances, which poses a risk to the country’s investment-grade credit rating, Lara Hodes, an economist at Investec said in a note before the data release.

The second quarter’s expansion was led by a rebound in the mining industry, which grew by 14.4% compared to a contraction in the previous three months, while the finance industry grew by 4.1%. Farming contracted by 4.2%.

“The reading was stronger than both our forecast of 2.2% as well as consensus 2.5%, and recouped all of the output lost in the first quarter when power outages crippled economic output. We expect growth to slow to around 1.5% in the second quarter and going into 2020, but exogenous shocks may knock down this number,” said Bloomberg economist Mark Bohlund.  — Reported by Prinesha Naidoo, (c) 2019 Bloomberg LP