"South Africa Seen Dodging Recession on Consumer-Led Rebound"

" South Africa Seen Dodging Recession on Consumer-Led Rebound \r\n South Africa\u2019s economy probably avoided tipping into a recession in the second quarter, handing the country\u2019s new coalition government a much-needed base to build on over the rest of the year. \r\n Stronger readings from manufacturing, retail and wholesale trade sales shows parts of the economy have turned positive that were a drag in the three months through March \u2014 when output shrank 0.1% \u2014 amid a clear improvement in national electricity supply. \r\n That will aid growth, with analysts polled by Bloomberg predicting a 0.5% gain when second quarter data is published Sept. 3, adding to evidence the country has turned a corner since elections on May 29. \r\n Lower inflation, which data due at 10 a.m. in Johannesburg is expected to show cooled to 4.8% in July from 5.1%, would be another positive clue. \r\n \u201cSouth Africans opened their wallets a little wider in June amid tentative optimism about the post-election economic outlook,\u201d analysts at Oxford Economics said in a note on Monday, after data last week showed retail sales rose 4.1% in June, compared with a year earlier. \r\n A softer inflation reading would support consumers by boosting spending power and encouraging the central bank to start lowering South Africa\u2019s painfully high interest rates next month. \r\n It would also follow improvements in manufacturing and wholesale trade sales during the second quarter, though mining continued to shrink, albeit by less than it did in the first quarter. \r\n \u201cWith load shedding suspended, economic data improved in the second quarter,\u201d analysts at Investec wrote in a note on Tuesday, using the local name for power cuts. \u201cThe data indicates a change in direction for gross domestic product from a contraction in the first quarter to an expansion.\u201d \r\n Investors have taken note. The rand has rallied around 5% against the dollar following the election, tuning into the mood as well as higher gold prices and hopes for lower US interest rates. \r\n Business confidence has also improved since post-vote negotiations yielded a broad governing coalition that joined centrist parties with the African National Congress, which lost its parliamentary majority for the first time since coming to power 30 years ago. \r\n That doused fears that the ANC would ally itself with leftist rivals including former President Jacob Zuma\u2019s uMkhonto weSizwe Party and the Economic Freedom Fighters. \r\n The self-styled government of national unity says it will accelerate reforms and investment, supporting growth and job creation in a country blighted by an unemployment rate of more than 33%. \r\n South Africans are cautiously taking the GNU \u2014 as it\u2019s locally known \u2014 at its word, while waiting for evidence it can deliver. \r\n \u201cThere is now an opportunity to put the economy on an upward trajectory that fosters greater business and investor confidence,\u201d the South African Chamber of Commerce said in an Aug. 14 statement. \r\n To be sure, Africa\u2019s most-industrialized economy still faces headwinds. It\u2019s only forecast to expand a meager 1% in 2024, before picking up to 1.7% next year. But that would still be an achievement after averaging barely 1% for the past decade. \r\n Household spending subtracted 0.2 percentage points from output in the first quarter, so increased consumption that turned a headwind into a tailwind would be helpful. Rate cuts could provide further momentum. \r\n The South African central bank has held its policy benchmark at a 15-year high of 8.25% since July 2023 to thwart inflation. But two of its six policymakers favored a quarter-point reduction when they met in July, suggesting that a cut will be debated when officials gather on Sept. 19. \r\n \u201cWe\u2019re moving in the right direction,\u201d said Elna Moolman, Standard Bank Group Ltd.\u2019s head of South Africa macroeconomic research. \u201cFrom a consumer perspective, we think that the outlook for the retail sales in the second half of the year is even stronger.\u201d \r\n South African manufacturing is another piece of the puzzle that points toward a rebound, growing 0.9% in the second quarter, compared with a 1.4% decline in the previous three months. Wholesale trade sales also rose 0.9% over the period. But mining shrank by 0.9%, after declining by 2.3% in the first three months. \r\n Jee-A van der Linde, senior economist at Oxford Economics, said that the poor mining result would probably offset the positive momentum delivered by a significant improvement in power supply. \r\n Eskom Performing \r\n State-owned utility Eskom Holdings SOC Ltd. hasn\u2019t imposed scheduled power cuts since late March after many months when they were an almost daily occurrence. \r\n \u201cOur base case is for real GDP to expand by 0.8% in 2024, and with economic growth forecast to reach 1.6% next year due to improved post-election growth prospects,\u201d said Van der Linde. \r\n Eskom\u2019s shortcomings and logistical snarl-ups at the nation\u2019s ports and railways have handicapped the South African economy for years. \r\n Hope that Eskom can keep the lights on and that freight-rail operations improve at troubled state transport firm Transnet SOC Ltd. is another reason for cautious optimism for the second half of the year and 2025. \r\n \u201cWe think that we have a bit more confidence now that the election is behind us,\u201d Moolman said. \u201cWe\u2019ve seen positive signals. There\u2019s more and more in the reform process\u201d that communicates to investors that \u201cit\u2019s worth making the investment.\u201d "

"South Africa Seen Dodging Recession on Consumer-Led Rebound"

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