Home News S.Africa in recession as economy shrinks 0.7% in Q1: data

S.Africa in recession as economy shrinks 0.7% in Q1: data

Published on 06/06/2017

South Africa's economy unexpectedly contracted in the first quarter of this year, pushing the continent's most advanced economy into its first recession since 2009, according to official statistics released Tuesday.

The data, which also showed unemployment hitting a 14-year high, are expected to pile more pressure on embattled President Jacob Zuma, who is fighting to keep his job amid a slew of political battles that have negatively impacted the economy.

“The South African economy moved into recession with the reported decrease of 0.7 percent in GDP (gross domestic product) during the first quarter of 2017, following a 0.3 percent contraction in the fourth quarter of 2016,” said Stats SA.

The contraction in the economy surprised economists who had expected a positive growth rate of around one percent.

“It did come as a surprise. I didn’t realise the economy was in such bad shape,” economic analyst and University of Cape Town professor Alan Hirsch told AFP.

The rand immediately lost 1.5 percent against the dollar following the announcement that the economy had fallen into recession.

The biggest contributor to the negative GDP growth was the trade, catering and accommodation industry, which shrank by 5.9 percent.

The manufacturing sector decreased by 3.7 percent as unemployment climbed to a record 27.7 percent, the highest jobless rate in 14 years.

– ‘Toxic combination’ –

Only the mining and agriculture sectors gave grounds for optimism, posting growth rates of 12.8 percent and 22.2 percent respectively for the first quarter, without which GDP would have contracted by 2.0 percent according to top four South African bank FNB’s senior economist Jason Muscat.

South Africa’s economy has experienced sluggish growth in recent years.

In April it lost its investment grade when the world’s two major rating agencies, Fitch and Standard & Poor’s, downgraded its sovereign debt to junk status. Their move followed Zuma’s dramatic ministerial shake-up that saw respected finance minister Pravin Gordhan axed.

The two ratings firms cited political and economic instability as grounds for the cuts.

“There is a lot of uncertainty in South Africa that is preventing people from making the kind of investment decisions they would like to have — both for consumers and for investors — the political uncertainty has been a serious factor,” said Hirsch.

In his midnight cabinet reshuffle in March, Zuma axed Gordhan and replaced him with his close ally Malusi Gigaba and removed several other ministers.

The main opposition Democratic Alliance (DA) blamed the ruling African National Congress for dragging the economy down.

“It is the ANC that has led us to this point of economic collapse, where we have a ‘junk’ economy in recession,” DA leader Mmusi Maimane said in a statement, blaming the economic crisis on “a toxic combination of policy uncertainty and grand corruption”.

Africa’s other economic heavyweight Nigeria is in its fifth consecutive quarter of recession.

“The rest of the world economy is in recovery, even Brazil has come out of recession, the other BRICS nations are all doing reasonably well and most African countries are in reasonably good shape compared with South Africa,” said Hirsch.