While President Jacob Zuma has claimed that it’s not all “doom and gloom” when it comes to the state of the economy, new Gross Domestic Product (GDP) data suggests he may be wrong.
This is according to Democratic Alliance shadow minister of finance, David Maynier, who noted that the real GDP decreased by 1.3% in the second quarter of 2015.
Despite slow growth globally, local economic growth is expected to increase to at least 3% over the next three years, President Zuma said recently.
“[This is] because we expect the electricity constraints to ease,” he told reporters at the Union Buildings in Pretoria.
However, StatsSA revealed on Tuesday, that real GDP decreased by 1.3% in the second quarter, meaning “there is now a very real danger that the economy may slip into recession and that there will be further job shedding in South Africa,” Maynier said.
The economic slowdown means that the projected economic growth rate may fall below the 2% projected by the National Treasury, which is far short of the 5.4% economic growth envisaged in the National Development Plan, the DA said.
This will, in turn, impact negatively on revenue collection, which the South African Revenue Service reported this morning had fallen short by R2.94 billion, or 0.9% of the revenue collection target, in the first quarter of 2015, it said.
“However, most importantly, the economic slowdown and possible recession is likely to lead to further job shedding, destroying the prospects of employment for the 7.6 million people looking for work in South Africa,” Maynier said.
The steep decline in GDP raises the risk of the economy tipping into a technical recession in the third quarter of 2015, FNB chief economist Sizwe Nxedlana warned on Tuesday.
Reacting to Statistics SA announcement, Nxedlana said this unexpected contraction “is the worst decline in a year and a half and it follows a 1.3% increase in the first quarter of 2015”.
“The steep decline in quarterly GDP raises the risk that the economy will tip into a technical recession in Q3 2015, defined as two consecutive quarters of negative growth,” said Nxedlana.
“This may depend on whether the recent wage disputes in the gold and coal industries result in strikes and lost production,” he said. “Compared to the second quarter of 2014, the economy grew by 1.2%, which was well below expectations.
In the first half of 2015, GDP growth has been 1.6% year-on-year. This suggests that there are downside risks to our already below consensus forecast of 1.7% for full year GDP growth.
“In the end, there are policy options available: by tackling the fundamental roadblocks to economic growth, including policy uncertainty, the energy crisis, inflexible labour laws, failing State-Owned Enterprises, and red tape which is stifling small business, we can boost economic growth and create jobs in South Africa,” the DA said.
Reporting with News24