JOHANNESBURG, June 6 (ANA) – South Africa’s first quarter Gross Domestic Product (GDP) figures released on Tuesday were described by economists as worse than expected and confirmed that the country had entered a recession for the first time in nine years.
GDP growth contracted by 0.7 percent, Statistics South Africa said, after declining by 0.3 percent in the last quarter of 2016. It puts the country in a recession for the first time since 2009, when three consecutive quarters of negative growth were recorded.
Economist Dawie Roodt said he had expected a more positive figure given the relatively low base of the previous quarter, and the fact that the first three months usually registered an upswing.
“We are in deep trouble. It is a deep and painful recession,” Roodt said, who added that he expected GDP growth for the year to be at just under or just above one percent.
“And that is not good because it means that the economy is growing slower than the population.”
Roodt said though agriculture and mining may continue to somewhat mitigate the contraction of other sectors, the size and spending power of the public service could no longer be a key sustaining factor for household spending as a component of GDP growth, as it had reached a limit where the fiscal account could no longer afford it.
Household consumption dipped 2.3 percent in the first quarter, while manufacturing declined by 3.7 percent. But the biggest negative driver for the first quarter was the trade, catering and accommodation industry, which shrank by 5.9 percent.
In total, seven out of ten manufacturing divisions showed negative growth, among them petroleum, chemical products, rubber and plastic.
Mining and agriculture grew by 22.2 and 12.8 percent respectively.
Expenditure on real gross domestic products fell by 0.8 percent in the first quarter. Net exports contributed negatively to growth in expenditure on GDP, with exports of mineral products and vehicles and transport equipment largely responsible for the decrease in goods.
The news was foreshadowed last week by the release of statistics which showed that unemployment had hit a 14-year high at 27.7 percent.
FNB senior analyst Jason Muscat agreed with Roodt and said that the first quarter dip was significantly worse than bearish expectations of zero percent growth. He said without growth in the primary sector, GDP would have contracted by a massive two percent.
“Our concern is that the numbers are backward looking, and don’t reflect the confidence shock we expect post the cabinet reshuffle and credit downgrades,” Muscat said.
“In this context, it is little surprise that unemployment rose to 27.7 percent in the first quarter of the year, and could deteriorate further in second quarter. We don’t expect the figure to put a rate cut on the table, but it may give Moody’s something to think about.”
Muscat also expressed surprise at the extent of the contractions in finance, real-estate and business services and government, which reflected just how weak domestic demand and investment was.
He said on a more positive note, the slowdown in government reflected the ongoing push toward fiscal consolidation, but did not bode well for overall growth going forward.
On the expenditure side, final consumption expenditure by government also contracted one percent.
Muscat said that households spent significantly less on clothing, recreation and restaurants and hotels and was indicative of how much pressure there was on households budgets.
Roodt was less convinced that the Cabinet reshuffle would impact heavily on the figures for the second quarter, but said policy direction and certainty were the two key factors that would need to be addressed to bring about an economic upturn.
– African News Agency (ANA)
