South Africa slides into recession

South Africa slides into recession
June 07 10:22 2017

South Africa’s economy slipped back into recession for the second time in 10 years in the first three months of 2017.

Figures published by the country’s official statistics agency, Stats SA, revealed the country’s economy shrunk by 0.7% in the first quarter of the year, following on from a 0.3% contraction in the last three months of 2016.

The news is likely to direct further frustration towards embattled president Jacob Zuma, who has been constantly dogged by corruption allegations, threatened by no confidence votes and has presided over a period of economic strife and political turmoil.

The uncertain and chaotic political climate has rocked investors, especially since Zuma ousted internationally respected finance minister Pravin Gordhan, a key rival, earlier this year.

Gordhan’s removal prompted a number of ratings agencies to downgrade South Africa’s credit rating to junk status. While the country has managed to dodge further cuts to its score in the past week, the economies weak performance is likely to weigh on agencies’ outlooks.

South Africa’s economic performance in the first three months of the year was substantially worse than most forecasts had expected, and marked the country’s first recession since 2009.

Institutions such as the International Monetary Fund had been predicting a rebound for South Africa this year, after years of lacklustre growth.

In May, the fund said the country would see 1% growth this year as two factors weighing on the economy – drought and depressed commodity prices – lifted.

That was evident in the fact that the only two industries to grow in the first quarter of the year were agriculture and mining.

However the rest of the data highlighted how damaging the events of the past months have been to investor and business confidence, and in turn the economy.

Elize Kruger, analyst at NKC African Economics, noted that South Africa’s “dismal performance” was recorded before Fitch Ratings and S&P downgraded its ratings earlier this year.

She said: “[This] has knocked confidence levels in the economy further and is expected to keep a ceiling on growth.”

NKC African Economics has cut its forecasts for the country’s 2017 economic growth from 0.9% to 0.5% as a result.

“This is notably lower than South Africa’s potential output… and far below what is needed to address South Africa’s growing unemployment and social inequality problems,” Kruger said.

[Public Finance International]