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South Africa has entered recession for the first time in eight years, data from Statistics South Africa showed on Tuesday, after the economy contracted in the first quarter, led by weak manufacturing and trade.
The economy contracted by 0.7% in the first three months of the year after shrinking by 0.3% in the fourth quarter of last year, the statistics agency said.
It was the first time two consecutive quarters showed contraction — a definition of recession — since the second quarter of 2009, although there have been individual quarters of so-called negative growth in more recent years.
Economists polled by Reuters had expected a quarter-on-quarter GDP expansion of 0.9%. “We can now pronounce that the economy is in recession,” Statistics South Africa Deputy Director General Joe de Beer said. “The major industries that contracted in the economy were the trade and manufacturing sectors.”
Gross domestic product rose 1.0% on an unadjusted year-on-year basis in the first quarter, compared with 0.7% contraction in the previous three months, the agency said.
Stanlib chief economist Kevin Lings says it is especially concerning that since the global financial market crisis in 2009, the rate of economic growth in South African has not managed to gain momentum and has not been robust enough to lead to widespread job creation in the private sector.
“This is despite government debt almost doubling since 2009. There has to now be a real risk that South African tax revenue collection under-performs even more, putting the fiscal authorities under significant pressure.”
The rand extended its losses against the dollar to more than 1% to a session low of 12.8525/dollar. Government bonds also weakened.
The poor growth numbers will pile more pressure on the government to get the economy back on track faster as it aims to stave off further credit ratings downgrades.
“SA will continue to face the risk of further credit rating downgrades unless there is a concerted and coordinated effort by policy officials to help lift domestic economic activity, starting with business confidence,” says Lings.
Ratings agencies S&P Global Ratings and Fitch last week said risks to ratings include weak economic growth and political uncertainty ahead of the ruling African National Congress (ANC) conference in December when a successor to President Jacob Zuma as party leader will be chosen.
Zuma can remain as head of state until an election in 2019.
Political risks were heightened in March this year when Zuma dismissed respected finance minister Pravin Gordhan, leading to credit ratings downgrades to “junk” status by S&P and Fitch.
Moody’s — whose Baa2 rating is two notches above “junk” — is reviewing South Africa for a possible downgrade.
Pressure on Zuma, including from within the ANC has swelled since the cabinet reshuffle and allegations of influence peddling by some of the president’s wealthy friends .Source: Reuters