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South Africa enters recession

South Africa enters recession

South Africa’s economy contracted by 0.7% in the second quarter of 2018. 

The poor performance was much worse than the 0.6% growth that was expected by economists. The main driver for the poor economic result was weak agricultural output and consumer spending. Highlights from the data released by StatsSA include the following:

  • Agriculture declined by 29.2% annually
  • Mining output increased 4.9% from the previous quarter
  • Manufacturing shrank 0.3%
  • Trade contracted 1.9%

The unwelcome news comes at a crucial moment for President Cyril Ramaphosa, who is trying to appease factions within his ruling ANC party as they prepare to contest the general elections in the 2019 elections. Since taking office early this year following the resignation of Jacob Zuma optimism the country experienced a wave of optimism dubbed “Ramaphoria”, however, this was quickly replaced by malaise after the economy shrunk by 2.2% in the first three months of 2018, the biggest quarterly contraction since the economic downturn of 2008. The second quarter results confirmed the country’s economy was in a downward trajectory. 

The gloom surrounding the current state of the South African economy has affected business confidence, which was initially boosted following the nomination of Ramaphosa. The situation has been made worse by the lack of certainty surrounding the country’s land reform policy which saw US President Donald Trump weigh in last month. The uncertainty has certainly affected investor confidence but Ramaphosa has called for calm over the emotive issue of land. The South African leader is juggling multiple threats to ensure he has a unified party for the upcoming elections.  

Political obstacles

President Ramaphosa has an immense challenge keeping the ANC together as the party builds up to the 2019 general elections. He was forced to take the unprecedented step of placing North West province under central control and removing its premier, ardent Zuma supporter Supra Mahumapelo, following violent protests that swept across the region.

Meanwhile, the governing party’s largest region and Zuma’s home province KwaZulu-Natal is also split, with supporters of the former president pushing back against his multiple legal woes. Zuma is facing corruption charges linked to an arms deal that occurred before his presidency and he is also a subject of interest in an inquiry into claims of state looting. He denies all charges.

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Written by African Business Magazine

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