South Africa avoids a recession as economy expands 3.3%

South Africa’s economy avoided a second recession in seven years as mining and factory output rebounded.

Gross domestic product rose an annualized 3.3 percent in the second quarter, compared with a 1.2 percent contraction the previous three months, the statistics office said in a report released on Tuesday in the capital, Pretoria. The median of 19 economist estimates compiled by Bloomberg was for 2.6 percent growth. The economy expanded 0.6 percent from a year ago.

Political turmoil, fueled by reports that Finance Minister Pravin Gordhan may be arrested and statements by African National Congress officials that some of the the Reserve Bank’s powers should be reconsidered, could overshadow the news of the economy rebounding in the second quarter. While factory output and retail sales expanded in the three months through June, the purchasing managers’ index fell below the neutral level of 50 last month, indicating future contraction in the manufacturing industry, and business confidence remains close to 13-year low.

Recent political events “detract from confidence and it detract from investment and it does detract from consumption,” George Glynos, managing director and chief economist at ETM Analytics in Johannesburg said by phone. “People just tend to become a lot more conservative with their spending behavior and their investment behavior when they don’t have confidence in the future.”

Manufacturing, which accounts for about 13 percent of the economy, expanded an annualized 8.1 percent and mining output increased by 11.8%, the statistics office said. Agriculture contracted by an annualized 0.8 percent, the sixth consecutive quarter of decline.

Low commodity prices, the worst drought in more than a century and weak export demand have weighed on Africa’s most industrialized economy and it will probably not expand at all this year, according to the central bank. That complicates the task of the government seeking to reduce a 27 percent jobless rate and stave off a downgrade to junk by credit-rating companies who have said slow growth is a major risk for the nation’s creditworthiness.

Since being reappointed in December, Gordhan has led the government’s efforts to retain an investment-grade debt assessment by meeting with business and labor leaders and investors to seek measures to boost growth and confidence. Gordhan returned to the post he held from 2009 until 2014 after President Jacob Zuma was forced to alter a decision to replace Nhlanhla Nene as finance minister with little-known lawmaker David van Rooyen.

There is a risk that the ruling African National Congress could turn to a more populist approach to address rising voter dissatisfaction after its worst election performance since Nelson Mandela led the party to power in 1994, Fitch Ratings Ltd. said after the Aug. 3 local government vote. The rand has lost almost 6 percent against the dollar since the first reports on Aug. 22 that Gordhan was summoned by police in relation to possible espionage charges for setting up a unit in the South African Revenue Service to spy on politicians when he headed the tax agency between 1999 and 2009.

The rand gained 1.2 percent to 14.2139 per dollar by 11:57 a.m. in Johannesburg. Yields on rand-denominated government bonds due December 2026 fell five basis points to 8.82 percent.

~Bloomberg