S.Africa economy shrinks for first time since 'Great Recession'

27th May 2014, Comments 0 comments

South Africa's economy shrank in the first quarter of the year, in the worst performance recorded since the global recession five years ago, official data showed Tuesday.

Statistics South Africa reported the economy contracted by 0.6 percent quarter-on-quarter, a stunning reversal for Africa's most advanced economy amid a rapid boom elsewhere in the continent.

The worse-than-expected data comes during the first full day on the job for South African finance minister Nhlanhla Nene.

The 55-year-old was sworn in as South Africa's first black finance minister on Monday, tasked with overseeing "radical" social and economic reforms in President Jacob Zuma's new five-year term.

Shortly after the release of Tuesday's data the rand fell almost one percent against the dollar.

The possibility of a recession, two consecutive quarters of negative growth, is not being ruled out.

"This makes for grim reading," said Razia Khan, Africa's regional head of research for Standard Chartered Bank.

The first quarter contraction -- which is annualised and adjusted for seasonal variations -- was blamed largely on a slump in the mining sector and a significant drop in manufacturing.

Khan said the figures showed an end to a crippling a platinum strike, now in its fifth month, and serious economic reforms were "even more of an imperative."

"In their absence, growth might continue to languish at these weak levels."

With unemployment above 25 percent and inflation rising, policy makers will worry that unrest in the mining sector is spilling over and hurting confidence across the economy.

"Predictably, the weakness mainly came from a sharp plunge in mining production," said analysts at Nedbank. "But the economy's fragility was on display in most other sectors too."

Weaker growth could pose significant problems for Nene, bringing weaker government revenues as he struggles to balance the fiscal books amid the threat of a further credit rating downgrade.

The shrinking economy will also pose serious problems for the South African Reserve Bank, which has seen efforts to curb inflation through higher interest rates held back.

"The weak growth performance was the primary reason why the SA Reserve Bank kept rates on hold in last week's (monetary policy committee) meeting," said Nazmeera Moola, economist and strategist at Investec Asset Management.

A quick rate hike could throw growth further into reverse.

In the last quarter of 2013 the economy grew 3.8 percent.


© 2014 AFP

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