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Is South Africa Edging Towards A Recession?

28/08/2014
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Africa’s second biggest economy narrowly escaped recession following a less than stellar GDP growth of 0.6 percent in the second quarter of 2014 coming on the heels of a contraction in the first quarter.

The five‐month long miners’ strike was a key driver of the contraction in the first quarter and led to the worst quarterly performance in five years. Also, the crises leading to the bailout of African Bank, one of the country’s biggest, attracted downgrades by credit ratings agencies, impeding investment and ultimately growth.

South Africa has the most advanced economy on the continent but still sees significant levels of inflation, poverty and inequality. Fortunately, the country has strengths in the finance, transport and property sectors which it can leverage for a comeback in the next quarter.

Statistics South Africa revealed that the most significant contributions to the quarter‐on‐quarter increase of 0.6 percent was the transport, storage, general government services and communication industry which contributed some 0.4 percent of a percentage point while the finance, real estate and business services contributed 0.3 percent of a percentage point to the growth. The improvement in finance, real estate and business services, according to the data released, was directly linked to increase in banking activities.

The most significant takeaway is that the country narrowly escaped a recession which is essentially two consecutive quarters of negative growth. Though this is consistent with the predictions made by the Monetary Policy Review of the Reserve Bank in June that the country was unlikely to fall into a recession despite the strike actions that drove the negative growth in the first quarter, early signs indicate a longer spell in the negative results corner, a position that reflects recession and for an extended period, depression.

Analysts had predicted a slightly better performance in the second quarter. Nedbank Economists, for instance, noted that “Real GDP expanded by a seasonally adjusted annualized 0.6 percent quarter‐on‐quarter. Although better than the contraction of 0.6 percent recorded in the first quarter, it is still slower than the 0.9 percent quarter‐on‐quarter expected on average by the markets and our own
forecast
of a 1.4 percent improvement.”

Generally, consumers have been advised to tread carefully because of pressures on household income, rising debt service costs and an unattractive job market. The mining and manufacturing sectors are expected to see better days, however, due to reported increase in global demand.

 

 

By Emmanuel Iruobe

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