Why South Africa will enter recession this year

Economist Cees Bruggemans says that leading economic indicators already point to a recession in certain sectors in South Africa.

A former consulting economist for FNB, Bruggemans said in a note that 4Q15 data “tells us the SA economy is in deep trouble in places, while having little momentum left in others and that little is now steadily being cut off.

“The sense of drifting into recession this year is a strong one.”

He said that political drama at home, makes for substantial volatility.

The economist highlighted a number of markets already in recession in the country, led by agriculture, having recorded its third negative quarter in 4Q15 at -14% year-on-year.

He said that motor trade has also disappointed for some time – since 2013 – while mining and manufacturing output continue to show negative returns.

Mining output stats in 4Q15 was -0.6% year-on-year, while manufacturing output has drifted in and out of near recession for three years. The 4Q15 quarter was -0.8% year-on-year, Bruggemans said.

Electricity generation is also in recession, with 4Q15 output -2.9% year-on-year, Bruggemans said. He added that things could get worse amid excessive tariff increases cumulatively, well above inflation, and as weak economic activity bites into the power intensive parts of primary and secondary sectors.

Last month, the World Bank warned that South Africa is at risk of slipping into recession in 2016, while ratings firm Moody’s said that the country’s worst drought on record could push the country over the edge.

On Tuesday, StatsSA reported that South Africa’s Gross Domestic Product for the 4th quarter of 2015 came in at 0.6% year-on-year, above expectations of 0.5%.

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Why South Africa will enter recession this year