JOHANNESBURG – South Africa’s struggling economy yesterday received a welcome reprieve from manufacturing, with the sector showing a strong rebound in April, pushing output to a three-year high and calming fears of a possible recession in the second quarter.
Manufacturing output, which was one of the main negative contributors to the shock 3.2 percent gross domestic product (GDP) plunge in the first quarter rose 4.6 percent on an annualised basis in April, beating analysts’ estimates.
The up-tick was the biggest rise since June 2016, as load-shedding concerns faded.
Statistics South Africa (StatsSA) said much of the increase in manufacturing output was attributable to the rise in production of basic iron and steel, metal products and machinery, which surged 9.4 percent, while motor vehicles, parts and transport equipment increased by 18.6 percent.
Capital Economics senior emerging markets economist John Ashbourne said the manufacturing output provided the first sign that the economy may have returned to growth in the second quarter, thus dodging a technical recession.
“We will know more when retail and mining figures are released later this week, but today’s data provides a bit of evidence that the economy avoided a second consecutive quarter of contraction, which would knock the economy into another technical recession,” Ashbourne said.
Last week, ratings agency Moody’s warned that the first quarter’s poor GDP print pointed to a high possibility of a technical recession in South Africa.
Manufacturing declined 8.8 percent in the three months to March, while the key agriculture sector fell 13.2 percent. Trade eased 3.6 percent in the first quarter and the economy contracted the most in 10 years.
The debilitating power cuts experienced subsided in the second quarter.
Simon Harvey, FX market analyst at Monex Europe, said South Africa’s manufacturing sector rebounded strongly in April, adding to predictions of a sharp rebound in growth from the first quarter’s dismal reading.
“Thus far, economic activity indicators point towards a strong reaction in growth, especially in April, as the effects of load shedding begin to fade. This has been reinforced with the strong beat in manufacturing production data for April,” Harvey pointed out.
StatsSA will today release April’s retail sales data, while mining production figures for April are to be released tomorrow, which will complete activity data for the start of the second quarter.
Meanwhile, a survey by Agricultural Business Chamber (Agbiz) and the Industrial Development Corporation (IDC) showed that agribusinesses remained downbeat about business conditions in South Africa.
The Agbiz/IDC Agribusiness Confidence Index fell from 46 points in the first quarter of this year to 44 points in the second quarter.
The organisations said the deterioration in sentiment in the second quarter was underpinned by seven out of the 10 sub-indices that make up the Composite Index.
Wandile Sihlobo, chief economist at Agbiz, said a persistent decline in confidence is typically followed by a similar movement in investment.
“Overall, while climate is largely outside the government’s control, the new Ramaphosa administration will need to move quickly to clear any lingering uncertainty about its agricultural and land reform policy and bio- security measures in order to unleash the full potential of this important sector, and contribute to boosting the rural economies,” Sihlobo said.