Farming Pulls South African Economy Out Of recession

South Africa emerged from a recession in the second quarter as agriculture helped the economy expand more than expected, official figures showed on Tuesday, strengthening the rand and bonds.
Africa’s most industrialised economy grew 2.5 per cent in the three months to the end of June, after contracting by 0.6 per cent in the first quarter and by 0.3 per cent in the final quarter of 2016, Statistics South Africa said.Image result for Workers harvest grapes at the La Motte wine farm in Franschhoek near Cape Town.
Economists polled by Reuters had expected a quarter-on-quarter expansion of 2.1 per cent and year-on-year growth of 0.4 per cent.
The rand firmed against the dollar in response to the data, and was trading 0.23 per cent firmer at 12.9500/dollar at 1113 GMT. Government bonds also firmed, with the benchmark paper down 1.5 basis points to 8.5 per cent.
Leading the recovery was the agriculture sector, which expanded 33.6 per cent in the second quarter as it recovered from last year’s drought. Mining, manufacturing, and trade also registered growth.
President Jacob Zuma last month said 2017 growth would be below 0.5 per cent, down from a forecast of 1.3 per cent in February, after the poor first-quarter numbers.
Low growth has piled pressure on Zuma, beset by the fallout from credit downgrades and corruption scandals.
Finance Minister Malusi Gigaba said in a statement on Tuesday the improved growth figures were encouraging but that it was too early to celebrate.
“We need to remain honest about the major challenges that still face the local economy. Poverty, unemployment, and inequality which are being underpinned by persistent low growth remain the challenge,” he said.
CONFIDENCE ELUSIVE
Gross domestic product rose 1.1 percent on an unadjusted year-on-year basis in the second quarter, compared with a 1.0 per cent expansion in the previous three months, the statistics agency said.
“The growth rate is not what planners and those in decision-making positions would have wanted. Although it’s not negative, it is not at the level that was planned for,” said Statistician-General Pali Lehohla.
Since South Africa emerged from the 2009 recession, growth has fallen short of the government’s target of five per cent, the level economists say is needed to curb unemployment.
“A restoration of investor confidence remains important for a sustained recovery. For now, that is still elusive,” said Standard Chartered Bank’s Chief Africa Economist Razia Khan.
“The Q2 GDP data demonstrates some momentum in the economy, but this is unlikely to be sufficient to discourage the (central bank) from further easing in support of the economic recovery.”
The South African Reserve Bank cut its repo rate by 25 basis points to 6.75 per cent in July for the first time in five years to support the economy.
Gigaba has pledged to shrink the budget deficit, currently 3.9 per cent, to 3.3 per cent of GDP by 2019 in an effort to avoid deeper credit downgrades, but economists believe he is unlikely to find the revenue or make the spending cuts needed.

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