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South Africa plunges into recession



President Cyril Ramaphosa of South Africa

South Africa has officially entered a technical recession, after Stats SA announced on Tuesday that the country’s real gross domestic product had declined 0.7 per cent in the second quarter of 2018, reports.

This follows a GDP contraction of 2.2 per cent in the first quarter. A technical recession is two consecutive quarters of negative growth.

The first quarter’s GDP contraction has now also been revised upward to -2.6 per cent. This is SA’s first recession since the 2008/2009 global financial crisis.

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Shortly after the economic data release on Tuesday morning, the rand piled on losses against the dollar, falling to a daily low of R15.23/$, down 2.4 per cent on the day.

Ahead of the announcement in Pretoria, analysts at FNB had been cautiously optimistic that SA could avoid a recession, but said it would be a ‘close call’.

The ABSA Purchasing Manager’s index for August, meanwhile, released Monday came in at a 13-month low.

The largest negative contributors to GDP growth were the agriculture industry  – which decreased by a whopping 29.2 per cent, followed by the transport industry (-4.9 per cent) and trade (-1.9 per cent).

“This [decrease in agriculture] was largely driven by a decline in the production of field crops and horticultural products,” said Stats SA in a media statement. “Continued drought conditions in Western Cape and a severe hailstorm in Mpumalanga, resulting in extensive crop damage, also placed additional pressure on production in the second quarter.”

The main positive contributors were mining, up 4.9 per cent and the finance, real estate and business services industry, which increased 1.9 per cent.

For the first time since Q1 2016, households also cut consumption expenditure, which decreased by 1.3 per cent for the quarter. The biggest cuts were recorded for spending on transport, food and drinks, according to Stats SA.

Government expenditure, meanwhile, grew by 0.7 per cent. While total investment, also known as gross fixed capital formation, decreased by 0.5 per cent.

Net exports contributed positively to growth in GDP through expenditure. Exports were up 13.7 per cent for the quarter due to increased trade in precious metals, mineral products and vegetable products. Imports increased by 3.1 per cent and were driven by imports of mineral products, prepared foodstuffs, beverages and tobacco and vehicles and transport equipment, according to Stats SA.

In August, President Cyril Ramaphosa punted his initiative to attract investment as a remedy to boost economic growth to members of Parliament. Cabinet is also working on a stimulus package to reignite growth. The SA Reserve Bank has estimated that the GDP growth would average at 1.2 per cent in 2018, which may now need to be revised downwards.

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