JOHANNESBURG - South Africa is likely to avoid a recession in 2016 but will not achieve the 0.9 percent growth target set by the Treasury in February, Finance Minister Pravin Gordhan said on Tuesday.

Gordhan also warned that the economy, which is still trying to undo the inequalities resulting from its racially divided history, could no longer rely on austerity measures to reduce public debt.

Last week, the central bank said it now expected the economy to remain stagnant in 2016, compared with the 0.6 percent growth predicted in May. The International Monetary Fund has also slashed its own forecast to 0.1 percent.

"We're unlikely to remain at that 0.9 percent," Gordhan told reporters on the sidelines of an investment conference and ahead of local elections next week in which the ruling African National Congress is facing tough competition.

"But what we are confident about is that we're not going to get into recession and that as an economy if we start doing the right things and contributing to economic growth and confidence building in our economy we can do better."

Gordhan gave no specifics as to why the forecast had been cut, but the economy has been hit by a drop in commodity prices, while a severe drought has hammered farming output.

All parties have campaigned for the Aug. 3 local elections on promises to tackle high unemployment and deliver better lives. Any defeats in the big population centres for the ANC could damage the party, in power since the end of white-minority rule in 1994, as it prepares for a presidential vote in 2019. South Africa's GDP growth averaged about 5 percent in the five years before recession hit in 2008. The government has previously suggested growth of 7 percent is needed to significantly slash unemployment.

Despite concerns that growth has remained sluggish since the last recession, Pretoria managed to retain its investment grade credit rating with Moody's, Fitch and S&P earlier this year.

But in a review published last Friday, Fitch cut South Africa's local currency debt rating by one level to just a notch above sub investment grade in what it said was a review of its sovereign rating portfolio across several countries.

"We are still sitting in investment grade as a country which is what we have been working towards with our social partners and working towards as a country, and which we succeeded in doing on the foreign currency rating," Gordhan said.

"The work that we did in the first part of the year will now continue into the second part of the year to ensure that we ... remain an investment graded destination whether it is for local currency or for foreign currency borrowing."

Ratings agencies and investors were worried when President Jacob Zuma changed finance ministers twice less than a week in December, raising doubts about the government's commitment to fiscal prudence. Zuma reappointed the well-respected Gordhan to the post to calm nervous financial markets. Gordhan was finance minister before from 2009 to 2014.

At a separate business meeting, Gordhan said that it was no longer practical to adhere to the austere fiscal measures popular with investors. Gordhan has been trying to find a balance between reining in spending to contain the budget deficit and avoid credit rating cuts, while also finding ways to boost economic growth and provide basic services to the poor.

"What's very clear is that austerity, which we in some parts of the G20 thought was absolutely necessary ... is no longer the answer," he said, after attending the G20 meeting in China.

"In South Africa, as well, we have some austerity fans amongst our public commentators; and it's time to rethink."