Home News South African GDP falls by 1.3% in second quarter

South African GDP falls by 1.3% in second quarter

Published on 25/08/2015

South Africa's economy shrunk in the second quarter, official statistics showed Tuesday, as gross domestic product fell an annualised 1.3 percent, surprising analysts who had predicted a small rise.

The slowdown was across the board, with manufacturing, mining and agriculture industries lagging the most in Africa’s most developed economy, amid nationwide power cuts and high unemployment.

“The real economy in the second quarter has performed negatively,” Statistician-General Pali Lehohla told a press briefing in Pretoria.

“An economic contraction may occur, obviously it’s captured in the GDP.”

In a commentary note on Monday, Nedbank had predicted GDP growth of 0.3 percent after first quarter growth of 1.3 percent.

The economy has struggled badly due to the electricity crisis and unemployment of about 25 percent, as well as a slump in commodity prices and the falling rand.

The rand hit an all-time low on Monday, breaching 14 to the dollar as jittery investors disposed of high-risk assets in the wake of slowing economic growth in China.

In July, Lesetja Kganyago, governor of the South African Reserve Bank, revised down the bank’s growth forecast to two percent in 2015 and 2.1 percent in 2016.

Compounding things further, South Africa is suffering from the worst drought in years which has damaged its profitable corn crop.

Load-shedding — regularly scheduled power cuts to reduce energy usage — has become part of everyday life for many people and companies.

State-owned power utility Eskom, which generates more than 95 percent of the country’s electricity, has been weakened by years of underinvestment and ageing infrastructure, as well as governance problems.

“I think the shock just came home much more quickly than we thought it would do,” said Peter Montalto, economist at Nomura.

“Particularly on manufacturing and agriculture, it was a surprise for us.”

Montalto said it was unlikely that South Africa’s government would make any big policy changes soon.

“Part of the problem, to be honest, is this slow grind of under performance,” he said.

“South Africa needs to have a shock to the system, which it arguably has had through Eskom, but that hasn’t been enough to shift the political status quo.”