Government in for tough ride as SA economy contracts on diminished output

By Gordon Bell and Adelaide Changole

(Bloomberg) – South Africa’s economy contracted for a second quarter this year in the three months through September as farming, mining and factory output slumped.

The rand extended its decline against the dollar, weakening 0.7% to R14.6472 per dollar by 11:33 in Johannesburg.

Gross domestic product shrank an annualised 0.6%, compared with a revised 3.2% expansion in the second quarter, Statistics South Africa said on Tuesday. The median estimate of 14 economists in a Bloomberg survey was for no growth. The economy expanded 0.1% from a year earlier.

Key insights

  • The contraction means full-year economic growth, which hasn’t exceeded 2% since 2013, could be even lower than the 0.5% projected by the Treasury in October. That will add to the woes of an economy buckling under failing state companies and ballooning debt that’s been sapping business and consumer confidence.
  • The continued lack of growth will weigh on the government’s revenue collection and make it even more difficult to lower an employment rate that’s close to 30% and that’s seen as one of the biggest obstacles to reducing poverty in one of the world’s most unequal nations.
  • Credit ratings companies have been flagging deteriorating debt metrics due to low GDP growth and high budget deficits as a key risk. Tuesday’s GDP data makes it even more likely that South Africa will lose its last remaining investment-grade assessment from Moody’s Investors Service.