South African economy declines by 3.2 per cent in the first quarter

SA’s GDP contracted by 3.2 percent in the first three months of the year compared with the previous quarter
South Africa Business District

South Africa’s economy declined sharply in the first quarter of 2019, the National Statistics Authority said Tuesday, piling pressure on President Cyril Ramaphosa’s newly elected administration. According to Stats SA, gross domestic product (GDP) for Africa’s most developed economy contracted by 3.2 percent in the first three months of the year compared with the previous quarter, the largest quarterly drop in about 10 years.

The slump came in contrast to 1.4 percent growth seen in the fourth quarter of 2018 and was far below the average 1.6 percent decline predicted by analysts. The slip was driven mainly by declines in the agriculture, manufacturing and mining sectors which reported drops of 13 percent, 8.8 percent and 10.8 percent respectively.

Depressing economic activity further was electricity rationing, infamously known as load-shedding. Cash-strapped power monopoly Eskom, which generates 90 percent of the nation’s energy, sporadically imposed the rotational power rationing in February, plunging swathes of the country into darkness for long hours and sparking public anger at the ANC-led government.

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The head of the North West University’s Business School, Professor Raymond Parsons, said rolling electricity power cuts had been grossly underestimated as the main culprits in the first quarter and had “probably shaved about 0.6 percent off expected growth for this year.”

The weak economy coupled with low wage increases was reflected by a 12.7 percent drop in the amount South Africans spent on clothing and footwear. Exports fell 26.4 percent in the quarter, while imports were down by 4.8 percent.

Ramaphosa, who held onto office in May when the ANC party won the national election, has vowed to revive the economy by attracting $100 billion in foreign investment and by fighting corruption. South Africa’s economy grew by less than one percent last year and even slipped into a brief recession during the third quarter.

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Parsons warned that the poor first quarter performance signalled a “higher risk of the South African economy drifting into a technical recession in the first half of 2019.” Main opposition Democratic Alliance leader Mmusi Maimane said the contraction was proof the country “continues to move backwards and there is a need for reform”.

South African main opposition party Democratic Alliance (DA) leader Mmusi Maimane
South African main opposition party Democratic Alliance (DA) leader Mmusi Maimane (L) arrives at the Independent Electoral Commission (IEC) Results Operations Centre on May 9, 2019 in Pretoria, South Africa. – South African President’s ruling ANC will retain its parliamentary majority after polls but with diminished support, complicating efforts to revive the embattled party and the country’s flagging economy, results showed on May 9, 2019. The African National Congress (ANC), in power since 1994, surged into the lead with nearly 57 percent after more than half the voting districts were officially tallied following May 8 vote. (Photo by Phill Magakoe / AFP)

Peregrine Treasury Solutions’ corporate manager Bianca Botes said it was “the biggest decline in GDP since the 2008 financial crisis” and a sign of the “dire state of the South African economy.” After the data was released, the rand weakened by as much as 1.32 percent against the dollar to 14.64 rands per dollar.

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Ramaphosa is to deliver his State of the Nation address later this month as South Africans and investors focus on soaring fuel prices and stubbornly high unemployment.

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