South Africa’s economy shrank by a shocking 3.2% in the first quarter of 2019, the largest decline seen since the global financial crisis 10 years ago.
The decline in SA’s gross domestic product (GDP) in the first quarter of 2019 surpassed expectations by economist and market watchers, who expected the economy to contract by 1.6%, according to a Bloomberg survey. Economists polled by Reuters expected a contraction of 1.7%.
The shocking decline also underscores the enormous task that President Cyril Ramaphosa has in fixing the country’s broken economy and the urgency in which his economic reform measures must be implemented by his new Cabinet.
After all, SA’s economy has failed to punch above the 2% annual growth levels since 2013.
The rand reacted immediately as it weakened by 20 cents against the US dollar to R14.64 after 11am when Statistics South Africa revealed the GDP figures.
Statistician-general Risenga Maluleke says the 3.2% contraction in the first quarter of 2019 from the previous one is the largest since the global financial crisis. In other words, the last time the economy shrank by such a large percentage was during the first quarter of 2009, when the economy declined by 6.9%.
Labour-intensive sectors including manufacturing, mining, and quarrying – which underpin Ramaphosa’s reform plan to revive the economy – were the largest negative contributors to GDP.
The manufacturing industry decreased by 8.8%, contributing -1.1 percentage points to GDP growth. Seven of the 10 manufacturing divisions reported negative growth rates in the first quarter including petroleum, chemicals products, rubber and plastic products, motor vehicles, parts and accessories, and other transport equipment.
The mining and quarrying industry contracted by 10.8% from the last three months of 2018, contributing a -0.8 of a percentage point to GDP growth. The agriculture, forestry and fishing industry contracted by 13.2%, contributing -0.3 of a percentage point to GDP growth.
These three industries rely on stable electricity supply to maintain and grow productivity levels. However, recent power cuts, which were intensified by Eskom, impacted productivity in these sectors. In fact, Maluleke says rolling blackouts contributed significantly to the overall decline of economic growth during the first quarter.
Final household consumption expenditure fell 0.8%, underscoring that consumer spending still remains in the doldrums as SA’s economy bites. Within the household expenditure category, clothing and footwear declined 12.7%, transport 3.1%, and recreation 4%. Exports fell 26.4% in the quarter, mainly due to exports of metals and vehicles, while imports fell 4.8%. Meanwhile, government final consumption expenditure increased by 1.3%, contributing 0.3 of a percentage point.
The dismal GDP print has also raised fears that SA’s economy might fall into a technical recession if figures for the second quarter of 2019 are also negative. A technical recession is two consecutive quarters of negative growth. In 2018, SA entered a recession for the first time since the global financial crisis.
The latest GDP numbers, slowing global economy and lack of domestic business confidence has prompted economists to downgrade their economic growth forecasts for 2019.
Both Econometrix’s Dr Azar Jammine and the South African Institute of Race Relations’ Ian Cruickshanks expect, at best, a growth of less than 1% in 2019. Jammine is on the downside, saying the economy might record negative growth this year.
On Monday, the International Monetary Fund also warned about risks to economic growth, citing troubles faced by bankrupt Eskom as the main threat to Ramaphosa’s reform measures. BM
"Each man believes on his experience" ~ Empedocles