August 23, 2018 / 5:48 AM / 3 months ago

One in three chance of South Africa recession this year: Reuters poll

JOHANNESBURG (Reuters) - South Africa’s economy probably struggled to gain traction in the second quarter after shrinking at the start of 2018, according to a Reuters poll of economists who said there was a one in three chance of recession this year.

FILE PHOTO: Cityscape of Johannesburg in South Africa February 18, 2010. REUTERS/Euroluftbild.de

Around 30 economists polled expect Africa’s second-largest economy to grow by 1.4 percent this year and by 1.9 percent next, slightly lower than the median view last month.

The South African Reserve Bank was even more pessimistic at its last monetary policy meeting, in July. It forecast that the economy would expand by just 1.2 percent in 2018, sharply down from a 1.7 percent projection in May.

For the second quarter, the consensus view sees just 0.6 percent growth on a quarterly basis. That would be a very feeble recovery from the 2.2 percent contraction recorded for January-March.

“The risk is that the services-driven sector, particularly financial services, fared poorly again in the second quarter, which could be the difference between whether South Africa avoids slipping into a recession or not,” said Jeffrey Schultz, economist at BNP Paribas.

The first quarter marked South Africa’s worst quarterly contraction in nine years, a reminder of the huge challenge faced by President Cyril Ramaphosa, who took over from Jacob Zuma in February, in delivering robust long-term growth.

“A real year-on-year growth rate for the second quarter of around or below 0.8 percent would result in a negative seasonally-adjusted and annualized growth value,” said Frank Blackmore of EFConsult, adding: “That would be the second quarter in a row of negative growth, and technically a recession.”

The poll showed the Reserve Bank holding interest rates at 6.50 percent until at least end-2019 and then only hiking them by 25 basis points in 2020.

However, this remains a huge challenge for South Africa's rand ZAR=D3 currency, which has suffered from a broad emerging market sell-off this year.

A separate Reuters poll showed emerging market currencies are unlikely to rebound from this year’s downturn until 2019, in part on rising trade tensions and the prospect of higher interest rates in major economies.

Inflation in South Africa is expected to remain within the central bank’s 3-6 percent target band, averaging 4.7 percent this year and 5.2 percent next year and in 2020.

Joblessness and social inequality are among the biggest problems facing Africa’s most industrialized nation.

Just over a quarter of the country’s labor force is unemployed. South Africa’s Gini coefficient, a measure of income inequality by the World Bank, is 0.63, one of the most unequal societies in the world on a scale between 0-1.

Editing by Gareth Jones

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