South Africa in First Recession Since 2009

Ugo Aliogo with agency report

For the first time since 2009, South Africa entered recession in the second quarter of the year, data showed yesterday, in a stinging blow to President Cyril Ramaphosa’s efforts to revive the economy after a decade of stagnation.
Reuters quoted reports from South Africa to have revealed that the economy contracted by 0.7 per cent quarter-on-quarter, led by declines in the agricultural, transport and retail sectors.

But reacting to the development, the Chief Executive Officer of Cowry Asset Management Limited, Mr. Johnson Chukwu, who spoke in a chat with THISDAY yesterday, said, “What is happening to South Africa is because of the trade war between the United States and China and the issues in Turkey, which global fund managers are looking at South Africa as one of the emerging markets.

“We have seen depreciation in a lot of emerging economies, including Nigeria. But because of the sophistication of the South African economy, the country is a direct beneficiary and suffers the implication of any effect or setback in emerging market economy.
“South Africa is one of China’s export markets. We should not expect such in Nigeria. It does not mean we are not affected. We have seen a lot of capital outflow in the country. But then, our own issue is more of heightened political risks due to impending upcoming elections.”

Continuing, the Reuters report stated that the Rand stretched losses against the dollar to more than two per cent and government bonds fell after the data was released.
However, analysts had predicted that the economy would grow 0.6 per cent in the latest quarter.
“We are in a recession. We reported a contraction in the first quarter … and now in the second quarter with a fall of 0.7 per cent,” South Africa’s Statistician-General, Risenga Maluleke, said.

The report also stated that Africa’s most developed economy needs faster economic growth if it is to reduce high unemployment – currently at 27 per cent – and alleviate poverty and inequality that stokes instability.
It added that unemployment was a hot-button issue ahead of national elections in 2019, and the African National Congress (ANC) has made repeated pledges that things would improve.

The report revealed that the country’s agricultural output fell 29.2 per cent in the second quarter, while the transport, communication and storage sector shrank 4.9 per cent, “mining output grew by 4.9 per cent and finance by 1.9 per cent.”
Statistics said the economic contraction in the first quarter was steeper than initially recorded at 2.6 per cent and that gross fixed capital formation fell by 0.5 per cent in the second quarter.
According to Reuters, “Ramaphosa has made wooing foreign and domestic money a cornerstone of his economic reform agenda, so the investment numbers will come as a big disappointment.
“The buoyant market mood that took hold after he was elected leader of the ruling ANC in December and then president of South Africa in February appears to have dissipated.

“The president is currently in China, attending a summit. President Xi Jinping pledged $60 billion to African nations at Monday’s opening of a China-Africa forum on cooperation.
“Economists said the dismal data would probably make it harder for the South African Reserve Bank to raise interest rates, as inflation has been gradually rising in recent months. Inflation stood at 5.1 per cent in July. The GDP figures could also draw the attention of ratings agencies, which have South Africa’s sovereign ratings near ‘junk’ status.
“There is no way to sugar-coat the numbers, the growth picture in the first half of 2018 is ugly and it shows in this economy that there is broad-based weakness across the primary and tertiary sectors of the economy,” said senior economist at BNP Paribas, Jeffrey Schultz.

The Head of Research at ETM Analytics, George Glynos, said the recession was a function of years of maladministration.
“Clearly this is not what Ramaphosa would like running into the elections next year,” he said. “The optics of South Africa is poor.”
A senior emerging markets economist at Capital Economics, Jason Tuvey, said he expected the economy to recover over the rest of 2018, but that a sharp rebound was unlikely.
“Today’s data will further dent hopes that Ramaphosa’s presidency would lead to a marked turnaround in South Africa’s economic fortunes,” Tuvey said.