SA 'likely' to dodge recession

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Copy of Copy of IOL bus apr3 Lonmin b [1] AP South Africa is likely to avoid recession as platinum mine strikes near a resolution.

Johannesburg - South Africa should dodge a recession this quarter, as mining strikes that derailed the economy during the first months of the year near a resolution, a Reuters poll found on Tuesday.

The chances the economy will slip into recession this quarter are just 30 percent, according to the poll taken in the past week, although the vast majority of economists did not expect investor confidence to improve this year.

Growth will be stuck at 1.9 percent this year, similar to last year's rate, but far from the 2.3 percent predicted in a May survey, the median of 32 economists suggested.

South Africa's platinum producers and the workers' union have agreed on a broad wage offer to end a protracted strike. Details such as the time frame and additional benefits remain to be settled, Impala Platinum said on Tuesday.

“A resolution to the strike action that has ravaged the mining sector may soon be close but, even so, production will take some time to come back online,” said Shilan Shah of Capital Economics in London.

The five-month strike has hit output at mines that normally account for 40 percent of global platinum supply and threatened to drag Africa's most advanced economy into recession. Metal exports are likely to remain constricted by a slowdown in demand from China, where slower economic growth is expected to affect major resource exporters like South Africa, Shah said.

A majority of economists surveyed in the past week trimmed their growth forecasts because of the platinum strike. The economy shrank 0.6 percent in the first quarter, the first quarterly contraction since a recession five years ago.

Last week, ratings agency Fitch cut its outlook for South Africa and Standard and Poor's downgraded its rating because of concern about the weak economic growth.

The slower growth has also changed the view on interest rates. The repo rate is now expected to rise only 50 basis points to 6.00 percent by the end of this year, 25 basis points less than last month's consensus.

The South African Reserve Bank had indicated it was already in a tightening cycle after raising rates 50 basis points in January to support a falling rand.

Inflation forecasts were little changed from last month. It will average 6.2 percent this year, 5.8 percent next and 5.5 percent in 2016, the poll said.

Reuters



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