Anxiety in South Africa as economy slips into technical recession

Anxiety in South Africa as economy slips into technical recession

South African consumers and households are bracing themselves to face hard times as the country’s economy is said to be slipping into a technical recession in the near future.

Official figures released recently show that the Gross Domestic Product (GDP) in Africa’s second’s largest economy unexpectedly declined by 1.3% quarter-on-quarter (q/q) in the second quarter (2Q) of 2015.

“We have to fasten our belts because I can smell trouble ahead,” Lungiswa Samuels, a Cape Town-based businesswoman, said yesterday.

“As a consumer and a taxpayer, I have all the reasons in the world to panic because our economy has been in bad shape in the past year, compared to Nigeria,” Samuels said.

Industry watchers say this is the worst decline in a year and a half and it follows a 1.3% increase in this year’s first quarter (1Q).

Reacting to the new development, First National Bank (FNB) chief economist Sizwe Nxedlana said the weakness in 2Q was centred in the primary and secondary sectors.

The industries recording declines included agriculture (-17.4% q/q), mining (-6.8% q/q), manufacturing (-6.3% q/q), utilities (-2.9% q/q) and wholesale and retail trade (-0.4% q/q), he said. Meanwhile, the lone strong performer was finance and business services (+2.7% q/q), which has proven to be a highly resilient industry in recent years, he explained.

The weakness in the agricultural sector largely reflects the drought that South Africa suffered earlier this year and the resulting decline in field crop production.

The pressure on the other industries in the primary and secondary sectors is linked to a combination of power shortages, low commodity prices and weak domestic and international demand, the bank says.

“The steep decline in quarterly GDP raises the risk that the economy will tip into a technical recession in this year’s third quarter (3Q).”

Technical recession is defined as two consecutive quarters of negative growth.

“This may depend on whether the recent wage disputes in the gold and coal industries result in strikes and lost production,” Nxedlana said.

Compared to 2Q 2014, the economy grew by 1.2% which was well below expectations. In 1H 2015, GDP growth has been 1.6% year-on-year (y/y).

“This suggests that there are downside risks to our already below consensus forecast of 1.7% for full year GDP growth,” added Nxedlana.

Photo: The city of Johannesburg, South Africa’s bustling commercial capital

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One Response to Anxiety in South Africa as economy slips into technical recession

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