Rama-problems grow as SA economy contracts 3.2%, most in a decade

By Ana Monteiro, Amogelang Mbatha and Tshegofatso Mokgabodi

(Bloomberg) – South Africa’s economy contracted the most in a decade in the first quarter after the mining, manufacturing and agricultural industries slumped.

The annualised decline in gross domestic product was 3.2% in the first quarter from a 1.4% expansion in the prior three months, Statistics South Africa said Tuesday. The median estimate of 16 economists surveyed by Bloomberg was for a contraction of 1.6%. The rand dropped.

Key Insights:

  • Weak manufacturing data in the second three months raises the risk that the economy may slip into the second recession in successive years. That would stymie efforts to bring down the fiscal deficit and stabilise debt, and for the nation to cling to the last remaining investment-grade rating at Moody’s Investors Service.
  • With inflation largely under control, the contraction will also add to calls for the central bank to ease monetary policy.
  • South Africa suffered some of the deepest electricity outages in a decade in the first quarter, knocking business and investor confidence to multi-year lows.
  • The agriculture industry contracted the most, declining 13%. Mining fell 11%, while manufacturing decreased 8.8%.

The economy hasn’t grown by more than 2% a year since 2013 and is battling to gain momentum despite political changes in late 2017 and early 2018, as businesses and foreign investors seek real reforms. The government and central bank see the economy expanding by 1.5% and 1% respectively in this year.