South African economy unlikely to shrink further

The resilience of South African consumer spending, coupled with underlying strength in the building and manufacturing industries, suggests another contraction in the gross domestic product is unlikely, the latest business confidence data shows.

Optimism among retailers and wholesalers remains well above long-term averages, with pressure on disposable income expected to ease as inflation slows, Rand Merchant Bank unit and Stellenbosch University’s Bureau for Economic Research said Wednesday.

At the same time, fixed investment in manufacturing resumed its upward trajectory after a temporary drop in the second quarter.

“None of this is to say that the economy will experience strong growth in the year ahead; external headwinds are mounting, interest rates will continue to rise while the danger of summer power outages is ever present,” RMB Chief Economic Ettienne le Roux said in a statement.

“But suggestions that the economy is now in the throes of a protracted recession after yesterday’s GDP release is an overstatement.”

South Africa’s gross domestic product shrank 0.7% quarter-on-quarter in the three months through June, according to data released by the nation’s statistics agency on Tuesday.

According to RMB and the BER, the business confidence dropped for the second consecutive quarter in the three months through September to 39 from 42 in the previous quarter.

According to Bloomberg data, the index hasn’t been above the 50 mark since the fourth quarter of 2014 – the longest streak since at least 1969.

“While on the face of it this is a disappointing outcome, the underlying picture is not as bad as the lower BCI implies,” Le Roux said.