Pressure piles on Ramaphosa as economy contracts 0.6% in third quarter

The economy contracted 0.6% in the third quarter, following a revised 3.1% expansion in the second quarter, data from Statistics South Africa showed on Tuesday.

Africa’s most advanced economy has struggled to emerge from a deep slump in the nearly two years since President Cyril Ramaphosa took the helm with promises to reform.

The latest data will pile on the pressure, particularly from ratings agencies which have flagged weak growth as a major risk, and investors weary of increasing state debt as revenues slide.

Economists polled by Reuters had predicted an expansion of 0.1% in quarter-on-quarter and seasonally adjusted terms in the latest three-month period.

The rand reacted negatively to the surprise shrinkage, falling soon after the release to trade down 0.8% against the dollar on the day.

GDP grew 0.1% year-on-year in the third quarter, also below economists’ forecasts for growth of 0.4% and below second-quarter growth of 0.9%.

Quarter on quarter GDP growth (Stats SA)

Finance Minister Tito Mboweni in October slashed the 2019 growth forecast to 0.5%.

Sharp dips in mining, manufacturing and agriculture were the largest contributors to the negative growth in the third quarter, with agriculture affected by a severe drought which has forced government to begin rationing water supplies nationwide.

“Both primary and secondary industries have gone on a slump in this quarter … Mining, manufacturing transport and communication all contributed (to negative growth). The primary sector slumped 5.5%, and in agriculture we saw that particularly in the area of field crops,” said Statistician-General Risenga Maluleke.

SA's GDP for the third quarter (StatsSA)

Fin24

Mining production fell 6.1% in the quarter, manufacturing was down 3.9% and agriculture contracted by 3.6%. The three taken together represent about a quarter of domestic product and a large chunk of taxes, revenues and employment.

In a report released yesterday, PwC economists Lullu Krugel and Christie Viljoen reflected on 14 economic indicators in order to gauge the health of the South African economy alongside the GDP data release.

“Out of the 14 indicators, only two – wholesale trade and civil construction confidence – showed improvement during 2019 Q3,” they said.

“This sends a clear warning that GDP data for the third quarter will be disappointing – and most likely in the fourth quarter as well.” – Reuters

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