Recession came as shock to few

While economists expected economy to expand, others saw consumer confidence slump

SOUTH Africa’s recession took economists by surprise, but for clothing shop owner Hans Setlhabi the gloomy numbers confirmed what he already knew – chronic unemployment and lofty inflation have shattered consumer confidence.

“I wasn’t surprised to hear about the recession. I saw that the economy was going down last year,” 38-year-old Setlhabi said, staring at shelves piled high with clothes offered at discount prices.

“People don’t have money and those who come in buy cheaper items and not the expensive ones.”

South Africa sank into recession for the first time in eight years in the first quarter, hit by weakness in consumer sectors such as wholesale, retail and accommodation.

The economic turmoil is piling pressure on President Jacob Zuma, who faces calls to step down as a string of corruption scandals, party infighting and sky-high unemployment erode public support ahead of elections in 2019.

The persistence of poverty and joblessness 23 years after the end of apartheid is also stoking anger, with unrest and service delivery protests taking place frequently.

Unemployment is at a 14-year high of 27.7%.

The government’s response to the gradually building economic crisis is due to be laid out later this week when Finance Minister Malusi Gigaba briefs the media on how he will address the economic challenges.

Economists had expected the economy to expand, helped by a recovery in mining and agriculture, but surprise contractions in the rest of the economy led to it shrinking.

Rising unemployment, high interest rates and a drop in purchasing power after a drought last year have all driven consumer prices up and hit consumer confidence.

“I used to go into a shop and fill a trolley with groceries to last my family a month but that’s not happening anymore,” 68-year old Mabule Modiba, a retired salesman who recently started driving a taxi to make ends meet, said.

“I thought I was done working, but now I also have to look after my grandchildren because my kids don’t have jobs.”

South Africa’s inflation rose to 7% early last year, breaching the central bank’s target of 3-6%, but has now eased to 5.3% as food price rises slow.

The Treasury has said the recession introduced significant downward bias to this year’s growth estimate of 1.3%. It means growth is more likely to fall than rise.

It also said that any policies introduced to combat the recession would be made within the current budget framework, in which South Africa aims to cut its budget deficit to 3.3% of national output in the next three years from the current 3.8%.

To stem falling support for the ANC, Zuma has vowed to redistribute economic wealth, but this will be almost impossible with an economy contracting.

Those who come in buy cheaper items and not the expensive ones