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South Africa’s economy contracts, slips into recession

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[FILE] Cyril Ramaphosa, 65, a former trade union leader, led the historic negotiations in the 1990s to end apartheid before launching a business career that made him one of the country’s wealthiest men. AFP PHOTO / MUJAHID SAFODIEN


South Africa’s economy fell into its first recession for almost a decade, exacerbating the rand’s decline amid the recent emerging-market rout and heaping pressure on President Cyril Ramaphosa. Africa’s second largest economy and most-industrialized economy shrank an annualized 0.7 percent in the second quarter, an outcome that was far worse than any forecaster had anticipated.

Latest data released on Tuesday by the South African authorities’ shows President Ramaphosa’s six-month-old government posting a negative start like his immediate predecessor, Jacob Zuma. The country’s Gross Domestic Product was reported at a decline of 2.6 per cent in the first quarter and is the first recession since 2009.

On a year-on-year basis, the South African economy grew 0.4 per cent , but the second quarter GDP came in below Bloomberg’s median estimate for 0.6 per cent expansion.Nigeria’s economy had slipped into a recession in 2016 and recovered in 2017 after five quarters of contraction.

The outcome casts a pall over the country’s new leadership, providing an uncomfortable parallel with the initial phase nine years of Ramaphosa’s predecessor, Jacob Zuma. The news underscores the fragility of South Africa’s economy at time when the country has been dragged into the emerging market turmoil of the past month that engulfed Turkey and Argentina.Slack farming output and soft consumer spending have put pressure on Africa’s most-industrialized economy.

Ramaphosa’s rise to power since December initially boosted sentiment and the rand following Zuma’s tenure of almost nine years. That optimism has faded as structural reforms weren’t implemented fast enough and global trade wars and turmoil in other emerging markets such as Argentina and Turkey soured sentiment.
“It’s showing that this economy remains in the doldrums, that we are in desperate need for policy certainty and structural reform to get us onto a growth path,” Elize Kruger, an economist at Paarl, South Africa-based NKC African Economics, said by phone. “This type of environment is difficult for job creation. We’ll get stuck in our low-growth term if we can’t get out of this.”

The rand weakened 2.9 percent to 15.2973 per dollar in Johannesburg. Yields on rand-denominated government bonds due December 2026 rose 21 basis points to 9.22 percent, the highest level since before Ramaphosa became leader of the ruling African National Congress.“Virtually every component in GDP came in worse than expected, deepening the divergence in improved business sentiment and weakening economic activity. We will reassess our real GDP forecast for 2018, which we have already brought down to 1.2% from 1.5% previously. A reading of 0.5-1.0% now looks more likely.”A contraction for the fourth quarter of 2016 was later revised to show growth, resulting in this being the first recession since the financial crisis of 2009.


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Cyril RamaphosaJacob Zuma
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