South African retail sales rose unexpectedly in March, data from the statistics office showed on Wednesday, boosting hopes that Africa’s most industrialised economy is set to avoid slipping into a technical recession in the first quarter of this year.

The economy contracted 0.3 percent in the final quarter of 2016 and a second consecutive contraction would have pushed the economy into recession for the first time since the global finiancial crisis of 2009.

Retail sales rose by 0.8 percent year-on-year in March, beating market expectations of a 0.7 percent contraction, after falling by 1.6 percent in February.

“Surprisingly strong retail sales figures support our view that the South African economy held up better in Q1 than many feared,” Capital Economics Africa economist John Ashbourne said in a note.

“Our GDP tracker suggests that the economy stagnated. While this would be a very weak result by regional standards, it would be enough to narrowly avoid another technical recession.”

On a month-on-month basis, sales inched up by 0.3 percent but were down 1 percent in the three months to March compared with the same period last year, Statistics South Africa said.

The outcome in the retail sector follows surprise improvements in mining and manufacturing output.


But the economy remains under pressure following decisions in April by S&P Global Ratings and Fitch to downgrade South Africa to subinvestment after President Jacob Zuma removed Pravin Gordhan as finance minister.

Ashbourne said the effect of recent political turbulence would not be felt until the second quarter.

“But we expect that the economy will probably hold up better than many seem to fear. South Africa’s external imbalances have narrowed in recent years and the agricultural sector will provide a significant tailwind,” he wrote.

South Africa expects its maize harvest to rise 87 percent this year from last year’s drought-hit crop.

(Reporting by Olivia Kumwenda-Mtambo; Editing by James Macharia)