Johannesburg - There is an almost even chance of South Africa falling into recession this year as its mining industry remains in contraction and farm output reels from the worst drought in living memory, a Reuters poll found.
While a majority of the 30 economists polled in the past week forecast some growth this year, they gave a median 45 percent chance of the country slipping into recession.
“The mining and manufacturing sectors will play a key role in determining whether South Africa avoids a second quarter of contraction, and thus a technical recession,” said John Ashbourne at Capital Economics. “The continued contraction of the mining sector remains concerning.”
Statistics South Africa said last week GDP contracted 1.2 percent in the first quarter of 2016 after rising by a revised 0.4 percent in the three months to December, mainly due to an 18 percent slide in the mining sector.
Mining contributes nearly 8 percent to GDP but has suffered from weak commodity prices. Agriculture, which accounts for just over 2 percent of GDP, fell 6.5 percent, reflecting the impact of a crippling drought across southern Africa.
“Looking at agriculture, we have seen five consecutive quarters of contraction. The drought effects are still being felt,” said Isaac Matshego, senior economist at Nedbank.
Economic growth is expected to slow to a meagre 0.4 percent this year from an estimated 1.3 percent last year before recovering to 1.2 percent in 2017 - still not enough to generate jobs for the quarter of the work force currently unemployed.
Growth was forecast at 0.6 percent and 1.3 percent respectively for this year and next in the May poll.
Interest rates on the rise
Interest rates are expected to end the year at 7.50 percent, as they were last month, with a quarter of a percent hike predicted for the third and fourth quarters.
However Elna Moolman, an economist at Macquarie, said last week's growth data made her more convinced that the South African Reserve Bank will not hike interest rates at the next MPC meeting, due in July.
The Reserve Bank left its repo rate unchanged at 7 percent in May, having raised rates by 200 basis points in the last two and a half years.
The US Federal Reserve is likely to raise rates in September but possibly as soon as July. Higher rates in the U.S. tend to draw much needed capital inflows away from emerging market currencies like the rand, stoking local inflation.
Inflation in South Africa is expected to average above target this year and next at 6.6 percent and 6.1 percent respectively, only returning below target in 2018 at 5.7 percent.
The central bank endeavours to keep inflation within 3-6 percent.
REUTERS