South Africa enters technical recession as fourth quarter GDP sinks

Stats SA has published the latest GDP data for South Africa, showing that the country’s economy shrank in the fourth quarter of 2019.

According to Stats SA, GDP growth for 4Q19 was recorded at -1.4%, leading South Africa into a technical recession over the period, following a decline of 0.6% in the third quarter.

A technical recession is defined as two successive quarters of economic decline. This is the second such recession in two years, after experiencing the first one in 2018.

A full recession requires other factors to be considered, over a longer period of time – specifically a decline in the agricultural, transport, manufacturing and trade sectors, as well as a drop in expenditure on real domestic product.

The latest data from Stats SA ticks all these boxes, but these conditions typically have to persist over a greater period of time.

South Africa’s economy declined by 3.2% in the first quarter of 2019 on the backdrop of renewed bouts of load shedding at the start of the year.

The economic decline was reversed in the second quarter of the year, with quarter-on-quarter growth of 3.2% – but the country again saw GDP contract by 0.6% in the third quarter. This third quarter contraction has now also been revised lower to -0.8%.

Taking the latest data into account, year-on-year (4Q18 vs 4Q19) South Africa’s economic growth declined 0.5%, and growth for the year overall was a mere 0.2%.

The annual real GDP growth rate of 0.2% was primarily led by economic activity in finance, real estate and business services.

Declines 

The transport, storage and communication industry decreased by 7.2% and contributed -0.6 of a percentage point to GDP growth. Decreased economic activity was reported for land and air transport, as well as transport support services.

The trade, catering and accommodation industry decreased by 3.8% and contributed -0.5 of a percentage point to GDP growth. Decreased economic activity was reported for wholesale and motor trade and accommodation.

The manufacturing industry decreased by 1.8% and contributed -0.2 of a percentage point to GDP growth. The divisions that made the largest contributions to the decrease were motor vehicles, parts and accessories and other transport equipment; and wood and wood products, paper, publishing and printing.

The construction industry decreased by 5.9% and contributed -0,2 of a percentage point to GDP growth. Decreases were reported for residential and non-residential buildings and construction works.

The agriculture, forestry and fishing industry decreased by 7.6% and contributed -0.2 of a percentage point to GDP growth. The decreased was mainly due to a fall in the production of field crops and horticultural products.

Increases

In contrast, finance, real estate and business services increased by 2.7% and contributed 0.6 of a percentage point to GDP growth.

The mining and quarrying industry increased by 1.8% and contributed 0.1 of a percentage point to GDP growth. Increased production was reported for platinum group metals, iron ore and gold.

GDP outlook for 2020

Economists and analysts are not optimistic for South Africa’s growth prospects for 2020, with projections as low as 0.5% and the most optimistic at 1.0%.

During his 2020 budget speech, finance minister Tito Mboweni brought estimates in line with international bodies like the International Monetary Fund and World Bank sub-1% at 0.9% for 2020.

This runs counter to the 3.5% growth expected for sub-Saharan Africa in 2020 – the second-fastest growing region in the world.

The rand traded at the following levels against the major currencies, shortly before 12h00 on Tuesday:

  • ZAR/USD: R15.59 (-0.9%)
  • ZAR/GBP: R19.92 (-0.7%)
  • ZAR/EUR: R17.34 (-0.6%)

Read: South African budget deficit is the biggest in 28 years

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South Africa enters technical recession as fourth quarter GDP sinks