South Africa is likely to be out of the recession by the fourth quarter of this year, while gross domestic product (GDP) growth of 1,5% is expected in 2010, Investec economist Annabel Bishop said on Friday.

South Africa's recovery is lagging global recovery by one to two quarters, owing to the timing of the recoveries of its key trading partners, namely Japan and Europe, she said.

"This retarding effect is proving to be far more significant in driving South Africa's recession than the previous interest rate hikes, although the institution of the National Credit Act is playing a significant role," she added.

Government and parastatal fixed investment continued to improve, although not at a pace sufficient enough to address the infrastructure challenges of the next five years, and electricity load-shedding would likely constrain growth, at best, to around 5%.

Despite the country's big public spend still ongoing, Bishop predicted that the budget deficit would rise above 8% in the 2009/10 financial , from the current 3,2% deficit, owing to the drop off in revenue and the recession.

"South Africa's budget deficit will increase owing to the decline in government revenue for the first time in nearly two decades, with the split between revenue from companies and individuals almost equal, while expenditure rises owing to increased social spending and infrastructure investment."

She noted that there also remained some uncertainty over the global economic outlook, as unemployment had risen sharply, fiscal deficits were a major concern, and financing conditions, while improved, remained difficult especially for small companies.

"While individual nuances may vary from country to country, developed economies are now entering the next stage of the crisis, namely how to exit the various emergency programmes in an orderly fashion, and at appropriate times, and how to clear up the economic fallout without destabilising their economies. A tough set of challenges remain," Bishop said.

China was likely to remain the powerhouse of global production and, with monetary and fiscal stimulus aiding the US, the UK, Australia, and other spenders to eventually climb out of the recession, global imbalances may well eventually intensify as savings-investment gaps widen, she warned.

"The encouragement that central banks and governments are giving economies to revive consumption through fiscal boosts and low interest rates will merely strengthen future imbalances, suggesting the inevitability of another correction, or attempted correction as began in 2008."