An improvement in manufacturing output in the second quarter of this year is fanning hopes that the economy is gaining the momentum necessary to avert a recession - two consecutive quarters of falling GDP - this year.On Thursday, StatsSA revealed that manufacturing output had gained a better-than-expected 2.9% year on year in April and sales rose 8.4% in the second quarter.The positive data came a day after StatsSA announced that GDP for the first quarter of this year had fallen a steeper-than-expected 1.2%, dragged down by contractions in the mining and agricultural sectors.The boost to manufacturing output in April came from vehicle, food, leather products, clothing, iron and steel production and was broad-based."Only one out of 10 major manufacturing sectors recorded a decline in output," said Stanlib chief economist Kevin Lings.story_article_left1The improvement follows a leap in the purchasing managers' index to above the 50 mark - the point separating contraction from expansion - in March and a jump to 54.9 in April.But mining production output fell 6.9% year on year in April - the sector's best performance since January. The industry recorded a 18% fall in output quarter on quarter, at a seasonally adjusted annual rate, as a result of lower production of platinum group metals and iron ore.Economists believe the improvements in manufacturing and slower rate of decline in mining suggest that positive growth will be recorded for South Africa, which would help to avert a recession.Barclays Africa economist Miyelani Maluleke said: "It's too early to say that we could slip into a recession. There's certainly a case for a rebound over the rest of the year."Safety stoppages in the mining sector had caused a slowdown during the first quarter, the drought appeared to be easing and prospects for the manufacturing sector were expected to improve into 2017, he said.Investec economist Kamilla Kaplan said the gains would be "contingent on a strengthening in external demand and allevia-tion of domestic infrastructure constraints as new capacity comes online, particularly in the electricity sector".She said South Africa could avoid a recession by achieving growth of about 0.5% - in line with the expectations of ratings agencies Moody's, S&P Global Ratings and Fitch, which, despite concerns about persistent weak growth and political uncertainty, recently affirmed the country's investment-grade rating. The financial costs of this level of unemployment will weigh heavily on government finances "Whether South Africa sees a 'technical recession' is beside the point - the economy is performing significantly below potential," said ETM Analytics economist Jana van Deventer.Private sector confidence in the economy was low, with the business and building sector confidence indices reflecting declines in the second quarter. The Global Entrepreneurship Monitor South Africa 2015-16 report shows that entrepreneurial intentions among South Africans have dropped 30%.Frans Cronje, CEO of the Institute of Race Relations, said that if policy reforms were not urgently implemented, South Africa could slip into a recession. The mining and agriculture sectors were being undermined by "hostile and counterproductive policymaking", he said."What we would like to see in the next quarter is changes around mining policy and labour legislation."story_article_right2This included the introduction of secret strike ballots for workers, a reworking of foreign-investment protection and a redraft of pending land expropriation legislation.Van Deventer said investment into the real economy was expected to be strained until political uncertainty was reduced and policies were made more business-friendly.This included less stringent labour regulation, eliminating uncertainty associated with property rights and reducing red tape for small and medium enterprises, she said.The ability or willingness of consumers to spend is critical to the health of the economy.Data released this week shows that household consumption expenditure contracted by 1.3% in the first quarter, the first contraction in two years, as consumers are squeezed by rising interest rates, higher inflation and unemployment.A significant 6% drop in growth of fixed capital formation was also recorded.Van Deventer said this was bad news for South Africa's medium- term growth outlook."It will be very difficult for the economy to achieve improved growth that is sustainable in the longer term in the absence of new investment into production," she said.The government, which has committed to reduce its debt and expenditure as part of the measures to avert a downgrade of its international credit rating, is still a large spender.Government final-consumption expenditure increased by 1%, StatsSA said.Weak growth is not improving high unemployment.John Ashbourne, Africa economist at London-based Capital Economics, said that during the first quarter the economy lost more than 300,000 jobs, which pushed the unemployment rate to 26.7%."The financial costs of this level of unemployment will weigh heavily on government finances," said Ashbourne.South Africa's welfare bill was high, making fiscal tightening very difficult politically, he said. The share of people receiving government welfare grants rocketed from 13% in 2003 to 30% in 2015 and in three of the nine provinces less than half of households earned the majority of their income from employment.speckmana@sundaytimes.co.za..