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Unexpectedly positive economic data may see SA avoid recession

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South Africa’s manufacturing output rose over expected in June while mining production shrank in a slower rate than market estimates, raising hopes the economy could ward off a recession and ratings downgrades to junk later that year.

Manufacturing output rose 4.5% year-on-year in June and 0.7% each month, while mining production fell 2.5%, less space-consuming than the 4% contraction forecast using a Reuters poll of economists.

“Today’s output figures support our view that this South African economy rebounded in Q2, thus avoiding a technical recession,” John Ashbourne, Africa specialist at Capital Economics, said inside a note.

The economy shrank 1.2% within the first 90 days of 2016 as major sectors in the economy contracted, battered by slack global demand, a slide inside the currency which includes stoked inflation, and a searing drought.

Analysts said the surprisingly positive data, plus a recent rally with the rand, could ease the worries on industry as well as consumers, but warned the relief may very well be over quickly.

The rand has gained about 5% from the dollar within the past week to your 10-month high following town elections that saw opposition parties make inroads on the ruling African National Congress’ majority.

“In the other half of this year we expect risk aversion another. It’s a really uncertain economic environment and there’s a chance the ratings agencies could flag policy direction after the election,” said Johannes Khoza, a senior economist at Nedbank.

“So that we don’t expect the potency of the rand to get sustained within the lover of the year.”

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