SA slumps into recession

LOOKS LIKE THERE’S MORE COMING

South Africa’s economy fell into a recession for the first time since 2009, after it contracted for a second straight quarter in the first three months of the year as all but two industries shrank.

Gross domestic product receded an annualised 0.7% in the first quarter from a contraction of 0.3% in the previous three months, Statistics South Africa said yesterday. The median of 19 economists’ estimates in a Bloomberg survey was for 1% expansion. There was only one forecast for a contraction.

While rains are helping Africa’s most-industrialised economy recover from a 2015-2016 drought, 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, said.

All industries, except agriculture and mining, contracted in the quarter, StatsSA said. The finance, real estate and business services industry shrank 1.2%, the first decline since at least the first quarter of 2013.

The rand lost 1.4% to 12.8920 per dollar by 12.22pm. Yields on rand-denominated government bonds, due December 2026, rose 6 basis points to 8.49% – the first increase in five days.

The six-member banks index extended declines after the release, dropping 1.7% in Johannesburg.

S&P Global Ratings and Fitch Ratings affirmed South Africa’s debt at the highest non-investment grade last week, with both companies saying policy uncertainty, political turmoil and slow economic growth pose a risk to fiscal consolidation.

Moody’s Investors Service, which rates the nation at two levels above junk, has the nation on review for a downgrade.

“The rating agencies, even if they have already done their assessments, will no doubt be downgrading their GDP outlook off the basis of these numbers,” Gina Schoeman, an economist at Citigroup, said.

South Africa’s growth slowed to 0.3% last year, the lowest rate since 2009, after low commodity prices, the effects of the prior year’s drought and weak demand for locally made goods weighed on output.

Unemployment rose to a 14year high in the first quarter. The business confidence index remains near the lowest level in more than two decades.

Christie Viljoen, an economist at KPMG, said: “I’m not excited about a big turnaround in the GDP numbers for the second quarter. There’s just no reason to believe that at this stage.”

The central bank on May 25 reduced its forecast for growth this year to 1% from 1.2%, and trimmed the outlook for 2018 to 1.5% from 1.7% because of the anticipated impact of the downgrades.