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Economy surprises with massive 3.1% rebound

By Alameen Templeton

South Africa shrugs off the doldrums as GDP takes off

South Africa stumped all the doomsayers in the second quarter with official figures showing the economy grew a healthy 3.1% in the three months to end-June, Stats SA said Tuesday. 

That beat most economists’ forecasts; they had expected a cumulative 2.4% rise.

But the good news has not tempered expectations of a rate cut at the Reserve Bank’s monetary policy committee meeting on September 17 to 19. The shock R2.88billion trade deficit for July continues to eat into confidence levels.

Warning lights had been flashing after the economy  shrank in the first quarter. A second, consecutive quarter of negative growth would have plunged South Africa into official recession.

But the first three months of the year saw more than 270 hours of load shedding, low investment levels, a five-month gold mining strike at Sibanye mines and a weak grape harvest. 

But Q2 data out today shows the mining sector has rebounded with growth of 14.4% – contributing a full percentage point to GDP.

The end of the Sibanye strike helped, but mining was boosted by a major rally in metal prices, particularly gold. Bullion is at its highest level in six years, while platinum leaped from below $800/oz in June to above $930.

Finance, real estate and business services rose 4.1%. Trade, catering and accommodation increased 3.9% and general government services grew 3.4%.

But the agriculture, forestry and fishing sector continued to shrink and, in the second quarter, was 4.2% smaller. Construction was down 1.6%.

Still, the economy was only 0.9% bigger in the second quarter of 2019 than a year before.  Stats SA revised the first-quarter GDP number down from -3.2% to -3.1%. 

The outlook remains bleak. Investment levels are moribund, and businesses are struggling. Purchasing managers data show weaker private sector activity with a grim outlook.

In July, the committee cut the benchmark repo rate by 25 basis points to 6.5% from 6.75% – the first cut since March 2018.

That was strictly in line with the US Fed. The South African Reserve Bank has been foreshadowing America’s interest rate movements in order to continue attracting carry trade portfolio flows into the JSE.

That boosts our trade numbers and prevents a slide into deficit and a consequent run on the rand.

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