Economy on the ropes as SA slips into recession

The economy has slipped into recession, mainly due to weak agricultural output.
The economy has slipped into recession, mainly due to weak agricultural output.
Image: 123RF/Kostic Dusan

The country slipped into recession in the final three months of 2019, the country’s statistics bureau said on Tuesday, the second contraction to hit the economy in as many years.

It is the third recession the continent’s most industrialised economy has suffered since the end of apartheid in 1994, but the second since Cyril Ramaphosa came to power in 2018.

The weak performance piles pressure on Ramaphosa’s administration which has been struggling to keep his election pledge to revive economic activity in one of Africa’s powerhouses.

Instead, South Africa remains dogged by high and rising debt, low growth and soaring unemployment. Gross domestic product fell by 1.4% in the fourth quarter, after dropping by 0.8% in the previous three months, Statistics South Africa said.

This took growth in Africa’s most industrialised country for all of 2019 to just 0.2%, its lowest reading since the global financial crisis in 2009. Ramaphosa’s government will barely avoid another bout of economic tumult with the economy forecast to only grow 0.9% this year.

Weak agriculture output and transport were the main drags on growth in the last quarter, StatsSA said, followed by construction, mining and manufacturing, which outweighed positive contributions from finance and government spending.

Seven of the nation’s 10 economic sectors contracted in the fourth quarter, StatsSA said. “Finance, mining and personal services managed to keep their heads above water, but this was not enough to prevent the economy from sliding into its third recession since 1994,” it remarked.

Drought in parts of the country and floods in others hurt agriculture and power station output, leading to disruptions in electricity, gas and water supplies. Recession is defined as two consecutive quarters of negative growth.

South Africa previously went into recession in 2008/2009 — which was prompted by the global financial crisis — and then again in 2018. Growth has been stunted by, among other issues, rolling electricity blackouts that have cost the country hundreds of millions of dollars in lost output.

Eskom, which supplies 95% of South Africa’s electricity, has been crippled by cash shortages and poorly designed coal-fired power stations, as well as decades of mismanagement and alleged corruption under former national president Jacob Zuma.

The drop in the last quarter surprised market watchers. “While a contraction was largely expected, the decline exceeded market expectations, demonstrating how extensively the electricity crisis in SA continues to plague the economic prospects of the country,” market pundit group, Peregrine Treasury Solutions said in a note.

The government has repeatedly bailed out Eskom and other state-owned enterprises including the national carrier South African Airways.

“Freeing the economy from the dead-weight of a failing state will provide South Africa’s struggling economy with the antidote needed to arrest the terminal decline and put the country on a sustainable path of economic growth,” said Geordin Hill-Lewis, a lawmaker with the largest opposition party, the Democratic Alliance.

The International Monetary Fund last year urged more “decisive” reforms to boost private investment in South Africa, forecasting economic growth to remain sluggish for a sixth consecutive year in 2020.

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