South Africa economy contracts 2.2% in Q1 2018, worst q-o-q performance in 9 years

South Africa’s economy contracted at the sharpest rate in almost a decade in the first three months of 2018, according to official statistics, underlining the challenge confronting President Cyril Ramaphosa’s bid to revive growth.

Gross domestic product in Africa’s most industrialised country dropped 2.2 percent on an annualised basis during the first quarter as mining, manufacturing and agriculture all recorded marked falls in activity, the statistics office said Tuesday.

A breakdown of the sectoral composition showed mining fell 9.9 percent, manufacturing 6.4 percent and construction 1.9 percent. The decline in the manufacturing sector was largely due to the petrochemicals and metals subsectors.

Specifically, mining and manufacturing, which comprise about a fifth of the economy, declined in the period as prices for commodities such as gold and platinum were stagnant and producers closed operations.

On the flip side, government services grew 1.8 percent and financial services 1.1 percent.

However, when measured against the first quarter of 2017, the economy expanded 0.8 percent. The rand reacted immediately and dramatically, weakening by about 10c against the dollar shortly after the announcement to about R12.65.

South Africa’s economic data have been volatile of late, with GDP rising at a 3.1 percent rate in the last quarter of 2017 and a feared recession between 2016 and 2017 vanishing from the figures after subsequent revisions.

Overall last year the economy expanded by 1.3 per cent versus 0.6 per cent in 2016, the first time growth accelerated in four years. The South African Reserve Bank is forecasting growth of 1.7 per cent this year.

But the contraction at the start of 2018, the sharpest slowdown in nine years, underscores the fragility of the economy after years of stagnation during the corruption-plagued presidency of Jacob Zuma, who stepped down earlier this year.

According to Thabi Leoka, an independent economist, Ramaphosa has to follow on this deveopment by concrete policy and concrete change, and “I think that many want to see change faster than what it is currently happening,” he said.

“It needs to be sustained and you can only excite a population for so long, but it has to be followed by strong policies and visible change, and currently I think we are still grappling the demise and destruction and disruption of the past nine years.”

The economy has contracted in each first quarter for four of the past five years.

“The base that these numbers are coming off is really high,” Jeffrey Schultz, an economist at BNP Paribas, said. “This is going to be transitory in nature — I expect a big bounce in the second-quarter figure.”

 Meanwhile, the South African Reserve Bank forecasts the economy will expand 1.7 percent this year and 2019 and 2 percent in 2020.