South Africa goes into technical recession as GDP falls 0.7% in second consecutive quarter

Adesola Afolabi & Bukola Odufade

Gross Domestic Product (GDP) data from South Africa’s statistical agency published Tuesday for the second quarter of 2018 has shown that the country has entered into a technical recession.

A country is said to be in a technical recession when in two consecutive quarters it records economic decline.

The reported data indicate a decline of 0.7 percent in the second quarter of the year, following a first-quarter decline of 2.2 percent.
Ahead of the GDP announcement, economists had anticipated data showing that South Africa had narrowly missed going into technical recession, but indicated that growth, if any, would have been too low to spell any good news for the economy.

Cyril Ramaphosa, South African President resumed office in December and this had initially boosted sentiment and the rand following Jacob Zuma’s corruption-plagued tenure of almost nine years, but that optimism has faded as structural reforms weren’t implemented fast enough.
“It’s showing that this economy remains in the doldrums, that we are in desperate need for policy certainty and structural reform to get us onto a growth path,” Elize Kruger, an economist at Paarl, South Africa-based NKC African Economics, said. “This type of environment is difficult for job creation. We’ll get stuck in our low-growth term if we can’t get out of this.”

According to Stats SA, the largest negative contributors to growth in GDP in the second quarter were agriculture, transport and trade.

The agriculture, forestry and fishing industry decreased by 29.2 percent and contributed -0.8 of a percentage point to GDP growth. The decrease was mainly because of a drop in the production of field crops and horticultural products, Stats SA said.

The transport, storage and communication industry decreased by 4.9 percent and contributed -0.4 of a percentage point. This was as a result of decreases in land transport, air transport and transport support services.

The trade, catering and accommodation industry decreased by 1.9 percent and contributed -0.3 of a percentage point.

Positive contributions came from the mining industry and finance, real estate and business services. Increased production was reported for mining of ‘other’ metal ores including platinum group metals, copper and nickel.

The manufacturing industry contracted by 0.3 percent in the second quarter. The majority of the ten manufacturing divisions reported negative growth rates in the second quarter. The largest contributors to the decrease were the motor vehicles, parts and accessories and the furniture and ‘other’ manufacturing divisions.

The electricity, gas and water industry increased by 2.1 percent, largely due to an increase in electricity consumed in the second quarter. The construction industry increased by 2.3 percent. Increases were reported for non-residential buildings and construction works activities.

The rand fell further against the dollar after the report was published, sinking to R15.22, having passed the R15 barrier earlier in the day.