With a struggling manufacturing sector and money leaving South African shores rapidly in the wake of a weakening rand, the country is at risk of hitting a recession, economists say.
South Africa narrowly managed to avoid hitting recession status in 2015, though it came close in the third quarter of the year when economic growth hit 0.7% following a contraction of 1.3% in Q2.
A recession is generally signaled by two quarters of economic decline.
Data released on Tuesday showed that South Africa’s manufacturing sector was teetering on the edge of recession, with two months of shrinking output as it was hit with slowing demand and low commodity prices.
The sector’s issues are compounded by the rand, which has taken a beating this week thanks to a variety of factors – most notably major sell-offs both locally and from Asian markets, which forced it to briefly trade as high as R17.99 to the dollar.
Lesiba Mothata, chief economist at Investment Solutions noted this week that, for the first time since 1956, South Africa is seeing more money leaving the country than entering it.
“South Africans are taking money out of the country,” Mothata told CNBC Africa. “That is ominous…when you look at countries that eventually had a current account crisis…these were similar outcomes.”
Looking at South Africa’s other sectors, the assessment is also not positive.
The agricultural sector has been hit hard by ongoing drought conditions across much of the country, while the mining sector has been struggling for a number of years amid labour issues and low commodity prices.
Stanlib chief economist, Kevin Lings told BDLive that continued slowdown in manufacturing and mining could lead to more job losses, and ultimately push the country into recession.
Late in 2015, economist Mike Schussler warned that South Africa should gear up for a recession in 2016 due to the factors we are witnessing now.
He warned that growth remains weak and will unlikely improve. “Many people are facing uncertainty in their jobs at present and we’re seeing a slowdown in investment spending,” he said.