Eskom miracle saves South Africa from recession

South Africa’s economy expanded in the second quarter as a rebound in the electricity and manufacturing sectors boosted output.

Gross domestic product rose 0.4% in the three months through June, compared with no growth in the prior quarter, which was revised from a previously reported contraction of 0.1%, Statistics South Africa said in a report released in the capital, Pretoria, on Tuesday.

All but one of 17 economists in a Bloomberg survey expected an expansion. The median estimate was for a 0.5% rise.

The rebound coincided with a reprieve from rolling electricity outages known locally as load shedding that have been instituted for up to 10 hours daily for years on end.

Eskom, the state utility that provides the bulk of the nation’s power, has attributed the improved supply to new generation units coming on line, a decline in unplanned outages and an improved maintenance program, and has said blackouts aren’t likely to be reimposed over the upcoming summer.

The electricity and manufacturing sectors were the main contributors to the economy’s improved performance, growing 3.1% and 1.1%, respectively. Finance, real estate and business services grew 1.3% in the quarter.

South Africa’s central bank is widely expected to begin reducing borrowing costs this month after inflation softened more than expected to 4.6% in July, close to the midpoint of its target range.

That should bode well for consumer spending and the knock-on effect on economic growth going forward. 

The spread between the South African Reserve Bank’s policy benchmark rate and the annual inflation rate is currently at an 18-year high.

At the July meeting of the bank’s monetary policy committee, Governor Lesetja Kganyago said the inflation outlook has improved somewhat. The bank is scheduled to deliver its next rate decision on Sept. 19.