South Africa falls into shock recession

The rand itself has weakened over 1% against the major trading currencies, falling to R12.84 against the dollar, and R16.59 against the pound. Image courtesy: BI
The rand itself has weakened over 1% against the major trading currencies, falling to R12.84 against the dollar, and R16.59 against the pound. Image courtesy: BI
The rand itself has weakened over 1% against the major trading currencies, falling to R12.84 against the dollar, and R16.59 against the pound. Image courtesy: BI

South Africa’s economy has officially entered a “technical recession”, the first time since 2009.

The report comes after the GDP contracted by 0.7% for a second straight quarter in the first three months of this year.

For economists, the news has come as a shock after the consensus was that the economy would rebound to a 0.9% growth.

The rand itself has weakened over 1% against the major trading currencies, falling to R12.84 against the dollar, and R16.59 against the pound.

While rains have helped Africa’s most-industrialised economy recover from a 2015 drought that was the worst since records started more than a century earlier, political uncertainty has hampered implementing reforms aimed at boosting growth. President Jacob Zuma changed his cabinet and fired Pravin Gordhan as finance minister in March, a move that saw the nation lose its investment-grade status with two ratings companies for the first time in 17 years.

“There is a risk that these contractions are not over and we could see another negative coming out in the second quarter of this year,” Annabel Bishop, the chief economist at Investec Ltd., told Bloomberg.

The largest negative contributors to growth were the trade, catering and accommodation industry which slumped by 5.9% and detracted 0.8 of a percentage point from GDP growth (down by R16bn to R148bn) and the manufacturing sector contracted by 3.7%, down 0.5 of percentage point from GDP growth (down by R4bn to R129bn).

Mining was down by R14bn to R129bn while government expenditure was down by R2bn to R170bn.

Joe de Beer, Statistics SA deputy director-general of economic statistics, said on Tuesday: “We have officially entered a recession. The last time we entered a recession was 2008-9 when we had three consecutive quarters of negative growth.”

He added: “There’s a clear link between the fall in household consumption expenditure and the decline in trade.”