GDP shock: Economy shrinks 2.2%, biggest decline in 9 years

There were big contractions in mining and manufacturing in the economy's worst performance since the financial crisis

05 June 2018 - 13:07 By Ntando Thukwana and Odwa Mjo
There were big contractions in mining and manufacturing in the economy's worst performance since the financial crisis
There were big contractions in mining and manufacturing in the economy's worst performance since the financial crisis
Image: Gallo Images

South Africa’s economy contracted more in the first quarter of 2018 than in any three-month period during the administration of Jacob Zuma.

Gross domestic product shrank an annualised 2.2% in the first quarter compared with the prior three months, Statistics South Africa said in a report released Tuesday in the capital, Pretoria. That’s the biggest decline in nine years. However, when measured against the first quarter of 2017, the economy expanded 0.8%.

The rand reacted immediately and dramatically, weakening by about 10c against the dollar shortly after 11.30, to about R12.65. 

Mining fell 9.9%, manufacturing 6.4% and construction 1.9%. The decline in the manufacturing sector was largely due to the petrochemicals and metals subsectors.

Government services grew 1.8% and financial services 1.1%.

The economy hasn’t grown at more than 2% a year since 2013 and is struggling to gain momentum despite political changes that bolstered investor confidence. President Cyril Ramaphosa’s rise to power since December initially boosted sentiment and the rand following Zuma’s scandal-ridden tenure of almost nine years, but confidence indexes have now returned to levels they were at late last year as businesses seek real reforms.

“Ramaphoria has to be followed by concrete policy and concrete change, and I think that many want to see change faster than what it is currently happening,” Thabi Leoka, an independent economist, said. “It needs to be sustained and you can only excite a population for so long, but it has to be followed by strong policies and visible change, and currently I think we are still grappling the demise and destruction and disruption of the past nine years.”

The economy has contracted in each first quarter for four of the past five years.

“The base that these numbers are coming off is really high,” Jeffrey Schultz, an economist at BNP Paribas, said. “This is going to be transitory in nature — I expect a big bounce in the second-quarter figure.”

Mining and manufacturing, which comprise about a fifth of the economy, both declined in the period as prices for commodities such as gold and platinum were stagnant and producers closed operations.

Highlights from the release include the following:

The South African Reserve Bank forecasts the economy will expand 1.7% this year and 2019 and 2% in 2020.

“The tertiary, secondary and primary sectors all performed worse, which means there was a broad-based slowdown across the economy,” Gina Schoeman, an economist at Citibank Inc., said by phone from Johannesburg. “This means we have to be concerned because they are probably going to have to revise down GDP forecasts this year.”

- Bloomberg, with additional reporting by BusinessLIVE

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