South Africa has entered recession for the first time in eight years, data showed yesterday, piling pressure on a government facing corruption allegations and credit downgrades.
Data from Statistics South Africa showed the first quarter contraction was led by weak manufacturing and trade, suggesting high unemployment and stagnant wages were dragging down South Africa’s long-resilient consumer sector, analysts said.
Political instability, high unemployment and credit ratings downgrades have dented business and consumer confidence in South Africa and the rand extended its losses against the dollar, while government bonds also weakened.
South Africa’s economy contracted by 0.7 per cent in the first three months of 2017 after shrinking by 0.3 per cent in the fourth quarter of last year, lagging market expectations of a quarter-on-quarter GDP expansion of 0.9 per cent.
It was the first time two consecutive quarters showed contraction – a definition of recession – since the second quarter of 2009, although there have been individual quarters of so-called negative growth in more recent years. A consumer frenzy helped the South African economy grow by an average five per cent a year in the five years before the 2009 recession, but it has struggled to register much growth since.
The worst performing sector was trade, catering and accommodation, which contracted by 5.9 per cent, while manufacturing – one of the key sectors – fell by 3.7 per cent.
Standard Chartered Bank’s chief Africa economist Razia Khan said the “awful” data showed weakness not expected.
The poor growth numbers will pile more pressure on the ruling African National Congress (ANC) to get the economy back on track faster as it tries to stave off further credit ratings downgrades and stem falling voter support.
Pressure on President Jacob Zuma, including from within the ANC, has risen since a controversial cabinet reshuffle in March that led to downgrades to “junk” status by S&P Global Ratings and Fitch and allegations of influence peddling.
MR Zuma has denied any wrongdoing over the allegations.
Corruption allegations escalated when local media reported this week on more than 100,000 leaked e-mails they say show inappropriate interference in tenders.
S&P Global Ratings and Fitch last week said risks to South Africa’s ratings include weak economic growth and political uncertainty ahead of the ANC conference in December when a successor to Mr Zuma as party leader will be chosen.
Mr Zuma can remain as head of state until an election in 2019.