Good chance of a South African recession this year: economists

A new Reuters poll published on Thursday (23 August), indicated that there was a ‘one in three chance’ of South Africa’s economy entering a recession this year.

This after South Africa’s economy struggled to gain traction in the second quarter, after shrinking at the start of 2018 – a reminder of the huge challenge faced by President Cyril Ramaphosa in delivering robust long-term growth, Reuters said.

Around 30 economists polled expect Africa’s second-largest economy to grow by 1.4% this year and by 1.9% next, slightly lower than the median view last month.

This follows an even more pessimistic forecast by the South African Reserve Bank which forecast in July that the economy would expand by just 1.2% in 2018 – sharply down from a 1.7% projection in May.

For the second quarter, the consensus view sees just 0.6% growth on a quarterly basis. That would be a very feeble recovery from the 2.2% contraction recorded for January-March.

“The risk is that the services-driven sector, particularly financial services, fared poorly again in the second quarter, which could be the difference between whether South Africa avoids slipping into a recession or not,” said Jeffrey Schultz, an economist at BNP Paribas.

“A real year-on-year growth rate for the second quarter of around or below 0.8% would result in a negative seasonally-adjusted and annualized growth value,” said Frank Blackmore of EFConsult, adding: “That would be the second quarter in a row of negative growth, and technically a recession.”

A separate Reuters poll showed emerging market currencies are unlikely to rebound from this year’s downturn until 2019, in part on rising trade tensions and the prospect of higher interest rates in major economies.

At 10h00 on Thursday the rand was trading at the following levels against the major currencies:

  • Dollar/rand – R14.39 (-1.5%)
  • Pound/rand – R18.55 (-1.3%)
  • Euro/rand – R16.60 (-1.3%)

Read: A shocking number of South Africans can’t afford even a basic food basket right now

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Good chance of a South African recession this year: economists