South Africa avoided a second recession in two years

Wealth

South Africa avoided a second recession in two years

With the economy growing by 3.1% in the three months to end-June, according to Statistics South Africa. 

South Africa avoided a second recession in two years, with the economy growing by 3.1% in the three months to end-June, according to Statistics South Africa. The country’s economy shrank in the first quarter after more than 270 hours of load shedding, weak investment levels, a gold mining strike and a weak agricultural harvest. In the second quarter, the mining sector rebounded with growth of 14.4% – contributing a full 1.0 percentage point to GDP growth, owing to a major rally in metal prices. Finance, real estate and business services increased by 4.1% in the second quarter. Trade, catering and accommodation increased 3.9% and general government services increased by 3.4%. The agriculture, forestry and fishing sector continued to shrink, however, and in the second quarter was 4.2% smaller than in the first. Construction was down 1.6%. 

The better-than-expected growth numbers combined with a weaker USD gave the local currency a boost, and the rand broke through the R15 to the dollar mark to trade at R14.79. The currency also traded stronger against the pound and the euro, at R18.19 and R16.32 respectively. 

Global markets closed positive. The JSE all-share index (ALSI) gained 1%, with the financial sector adding 3.16% driven by a stronger currency. Industrials gained 1.72%, while mining lost 1.55%. 

The United Kingdom is still struggling with fundamental questions over Brexit. In the past week, the British parliament wrestled control of the Brexit timetable away from the government. The House of Commons passed a cross-party bill on Friday, which requires the prime minister to ask the European Union (EU) for an Article 50 extension until 31 January unless Parliament agrees a deal with the EU by 19 October. The net effect of all this is that no-deal risk has receded in the short-term, but the risk of a general election has increased, though the timing remains uncertain.

Chinese trade negotiators confirmed that talks will take place in the coming weeks to prepare for face-to-face meetings between US and Chinese trade officials early in October, in Washington.

Political instability and weak governance remain fundamental obstacles to stronger economic growth. Hopefully, some stability will return globally and shift the focus to sustainable growth.


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