SA IN RECESSION
Rand worst performer
SOUTH Africa has slipped into recession after the country’s Gross Domestic Product (GDP) contracted by 0.7 percent in the first quarter of this year, against the expectations of most economists.
The Statistics South Africa data was on the back of a 0.3 percent decrease in the last quarter of last year. Following the release of the GDP figures, the rand extended its losses which had started earlier in the day. At 12.50pm, the currency was trading R12.84 to the US dollar. By 5pm it was at R12.80, 10c lower than the previous day.
“The rand did start the day on the back foot, but a surprise technical recession – two consecutive quarters of negative growth – saw the currency sell off further,” said MMI economist, Sanisha Packirisamy.
She said that the rand had been one of the worst performers across the emerging market sphere, “again suggesting it is domestically-driven rather than a phenomenon being felt across emerging markets.”
The GDP data, which comes days after Statistics South Africa released figures which showed that the unemployment rate in the first quarter of this year had risen to a 13-year high, is a further confirmation of the precarious state of the South African economy.
The shrinking economy and rising unemployment are likely to weaken business confidence further, resulting in lower private sector investment.
Efficiency Group economist, Francois Stofberg said yesterday that the 0.7 percent contraction was unexpected. “Consensus was for growth to be at least 0.9 percent, the contraction came as a bit of a surprise, especially seeing as every one of the major sectors in South Africa saw a contraction in the first quarter. The broad nature of this contraction implies that the structural problems in South Africa have now taken root,” said Stofberg.
He said sentiment and confidence of consumers, business, and investors was likely to slump even further. Countries in recession did not create wealth, or much-needed jobs, he said. “A recession at such a crucial time of political uncertainty and turmoil will most likely fuel negative consumer sentiment and lead to more social unrest,” he said.
While rating agencies Fitch Ratings and S&P’s Global left South Africa’s ratings unchanged, the possibility of further downgrades in the sovereign rating lurks. Stofberg said the two agencies would not change their decision because of the GDP figures. Moody’s Investor Service would, however, consider the figures and most likely also downgrade SA to sub-investment grade, “even though they still have us two notches above investment grade. The chances of seeing them downgrade our local currency debt to sub-investment grade is still slim, but ever-increasing with news of a technical recession.”
Elize Kruger, a senior economist at NKC African Economics, said low business and consumer confidence levels, dismal local demand, high unemployment, political uncertainties and hesitant global demand conditions had a negative impact on the economic environment in the first quarter of this year.
“Furthermore, this dismal
A beggar and a man collecting recyclable materials at a Johannesburg street intersection. South Africa is in recession, with unemployment at 27.7 percent.