South Africa will avoid recession this year: central bank - CNBC Africa

South Africa will avoid recession this year: central bank

Southern Africa

by Reuters 0

South Africa will avoid recession this year. Photo: Wikimedia.

South Africa will avoid a recession this year with a recovery in areas like mining and manufacturing likely to lift growth in the last three quarters, the central bank said on Wednesday.

Growth in continent's most industrialised economy contracted 1.2 percent in the first quarter as the mining, manufacturing and agricultural sectors retreated sharply.

South Africa should, however, narrowly avoid a recession despite the central bank last week cutting its growth forecast for 2016 to zero, Deputy Governor Daniel Mminele said in a speech posted on the bank's website.

"The SARB does not believe that a contraction in the second quarter is likely," Mminele said.

"In order to achieve a growth rate of zero percent, the economy will need to grow by between 0.8 and 1.0 percent in each of the three remaining quarters."

Last week the South African Reserve Bank (SARB) kept its benchmark interest rate on hold saying a weak economy had persuaded it to pause a hiking cycle.

Mminele said positive economic data for the second quarter in the mining and manufacturing sectors, coupled with a fall in inflation and lower global oil prices should vindicate the SARB's decision.

Manufacturing output rose more than expected by in May, while mining contracted at a slower rate in the same month.

On the effects of the UK's decision last month to quit the European Union, Mminele said South Africa would be among the hardest hit economies in Africa.

"South Africa's trade links are relatively small, but could suffer the most, given its strong investment and financial links with the UK," said Mminele, adding that foreign direct investment was likely to be hit.

FDI inflows to South Africa are already on the decline, falling to 9.9 billion rand ($690 million) in the first quarter from 22.6 billion in the final quarter of 2015.

($1 = 14.2725 rand)

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