The South African Reserve Bank's (Sarb's) March Quarterly Bulletin shows that South Africa's economy is recovering, Investec Asset Management said on Tuesday.

Earlier, Sarb released a somewhat bullish bulletin in which it said that the South African economy had continued to gather momentum in the fourth quarter of 2009.

André Roux, head of fixed income at Investec Asset Management said the data contained in the bulletin represented the expenditure side of the economy and showed an expenditure pattern that was consistent with an economy that was recovering.

"Driving this recovery in expenditure is the fact that the decline in inventories is slowing sharply.

"This will continue to be the driver of growth for the foreseeable future as businesses begin to restock properly again," Roux said.

He added that consumption was a small positive on the quarter and better than the market expected.

"This is largely the result of the improving trend in vehicle sales, which became evident towards the end of last year."

On the investment side the outcome was also "a bit better" than expected, with an end to the decline in investment, Roux said.

This was particularly noticeable in respect of private investment, he added.

He said that the current account deficit, at 2,8% of gross domestic product (GDP), was "surprisingly" small.

"This was primarily driven by an improvement in the merchandise balance, which in turn was caused by an improvement in South Africa's terms of trade."

He said that in the latter half of last year, the prices of South Africa's exports rose more sharply than import prices.

In addition to the improving merchandise balance, the current account yet again benefited from a steadily improving income balance, largely a reflection of declining dividend outflows, Roux added.

He said that the capital account was again strong on the quarter, and more than sufficient to cover the current account deficit.

"This is largely owing to the unusually large equity portfolio investments we saw in the second half of last year.

"This trend has continued and is the main reason why the rand has remained strong," he said.