SA IN RE­CES­SION

Rand worst per­former

The Star Early Edition - - FRONT PAGE - Siseko Njobeni

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

PHOTO: AP

A beg­gar and a man col­lect­ing re­cy­clable ma­te­ri­als at a Jo­han­nes­burg street in­ter­sec­tion. South Africa is in re­ces­sion, with un­em­ploy­ment at 27.7 per­cent.

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