South Africa Suffers Second Recession in Two Years

Figures released by Statistics South Africa show that the country was plunged into another recession as its economy shrank by 1.4% in the fourth quarter of 2019. Following a contraction of 0.8% in the third quarter, this means that the country’s economy was in a recession for the last half of 2019.

A recession occurs when the Gross Domestic Product (GDP) falls for two consecutive quarters, and this happens to be South Africa’s third recession since 1994. For the whole of 2019, the South African economy grew by only 0.2% (in real terms) while in 2018, it saw growth of only 0.8%.

As the economy battles the fallout of load shedding, the decline of the fourth quarter is larger than economists predicted. Out of 10 industries, seven contracted in the fourth quarter, with agriculture (-7.6%) taking the biggest hit. The manufacturing industry shrank 1.8% in the fourth quarter, while the transport, storage and communication industry saw a decline of 7.2%. Mining was one of the few bright spots, with Q4 growth of 1.8%. This was led by platinum group metals (PGMs), gold and iron ore.

Stats South Africa reports that household spending increased by 1.4% in the final quarter of 2019, but spending on clothing and footwear was up by 8.5%. This weak growth is likely to add more woes to President Cyril Ramaphosa’s government, as the economy under his leadership continues to suffer, amid internal and external pressures.

Speaking at an engagement with the South African National Editor’s Forum (SANEF) in Cape Town, he said, “This could not have come as a shock to us because the signs were there. It’s been load shedding and the impact on manufacturing and trade.” In 2018, South Africa suffered its first recession under this present administration when the GDP contracted by 2.6% in Q1 and 0.7% in Q2.

READ MORE: South Africa Risks Economy Downturn – IMF

At the 2020/21 Budget review, the Treasury had erroneously estimated a 2019 growth of 0.3%, but the true figure makes the projected 2020 growth of 0.9% look optimistic. In addition, there are growing concerns regarding the effects of the Coronavirus on the South African economy, especially with China, a major importer of steel, hit hard.

A proposed solution to the economic crisis is a slash of R160 billion from the public sector wages, by Finance Minister Tito Mboweni. The stated reasons include the minimal contribution to overall economic growth from that sector and its obstruction of other avenues for generating growth.