Massive economic decline in South Africa as recession looms

·8 Jun 2016

Despite expectations from ratings firms to the contrary, South Africa is one step closer to a technical recession in 2016, after showing a massive decline in economic growth in the first quarter of the year.

Stats SA has released its GDP data for the first quarter of 2016, showing that the country’s economy contracted by as much as 1.2%, down from marginal growth of 0.4% in Q4 2015.

This contraction is significantly worse than expectations which pointed to a contraction of 0.1%.

The largest negative contributor to growth in GDP in the first quarter was mining and quarrying, which fell by 18.1% and contributed -1.5 percentage points to GDP
growth, Stats SA said.

Transport, storage and communication decreased by 2.7%, which contributed -0.2 of a percentage point to GDP growth.

The two other industries that contracted in the first quarter were agriculture, forestry and fishing; and electricity, gas and water.

Finance, real estate and business services increased by 1.9%, which contributed 0.4 of a percentage point to GDP growth.

Notably, this is not the biggest Q4 to Q1 drop South Africa has seen. GDP growth dropped from 4.9% to -1.6% between Q4 2013 and Q1 2014.

However, South Africa had a weak fourth quarter in 2015 – which is historically seen as the strongest quarter due to holiday spending – growing at only 0.4%.

The -1.2% growth rate in Q1 2016 puts South Africa on the edge of recession, if Q2 data shows the same negative growth it did in Q2 2015.

Late May, Stats SA revised GDP data for 2015, showing that the country narrowly missed a technical recession by a mere 0.3 percentage points.

A technical recession is described as two successive quarters of economic decline.