- GDP forecast to expand at slowest pace since 2009 this year
- S&P and Fitch affirmed credit rating one level above junk
South Africa’s economy contracted in the first three months of the year as mining and farming output shrunk.
Gross domestic product declined an annualized 1.2 percent in the first quarter, compared with the previous three months when it expanded by 0.4 percent, the statistics office said in a report released on Wednesday in the capital, Pretoria. The median of 21 economist estimates compiled by Bloomberg was for a 0.1 percent contraction.
Fitch Ratings Ltd. affirmed the nation’s credit rating at BBB-, the lowest investment-grade level, with a stable outlook, on Wednesday. S&P Global Ratings affirmed the nation’s credit rating at BBB-, the lowest investment-grade level, with a negative outlook, on June 3 and warned it could cut South Africa’s debt to junk if the economy doesn’t improve or if institutions are weakened by political interference.
“The fact that we have a negative outlook from S&P still means that over the next six months we would need quite a big positive surprise to South Africa in some shape or form in order to get back to form,” Gina Schoeman, an economist at Citigroup Inc. in Johannesburg, said by phone on Wednesday. “The GDP outlook has to improve and today’s numbers suggest that the consensus is probably optimistic.”
A slump in commodity prices, a drought, weak export demand and policy uncertainty exacerbated by reports that Finance Minister Pravin Gordhan may be prosecuted and court rulings against President Jacob Zuma have weighed on output. Business confidence in Africa’s most industrialized economy fell to the lowest in almost 23 years last month and GDP will probably expand at the slowest pace since the 2009 recession this year, according to forecasts from the government, central bank and the International Monetary Fund.
Farming output contracted by an annualized 6.5 percent, the fifth consecutive quarter of decline, and mining shrunk by an annualized 18.1 percent, the statistics office said. The transport industry entered a recession in the three months through March and declined by an annualized 2.7 percent.
“While the GDP as gone down by 1.2 percent, if we exclude mining which was quite a big drop in this round, growth would have been 0.5 percent,” Michael Manamela, Chief Director of National Accounts at the statistics office, told reporters in Pretoria. “Mining fell by a large amount.”
The rand strengthened 0.1 percent to 14.8948 per dollar as of 11:59 a.m. in Johannesburg. Yields on rand-denominated government bonds fell six basis points to 9.04 percent.
The World Bank on Tuesday cut its cut 2016 growth forecast to 0.6 percent from 0.8 percent and said low business confidence and political tensions are slowing investment growth.
South Africa needs annual economic growth of 7.2 percent from 2018 to achieve the government’s targets in its National Development Plan of reducing the jobless rate to 6 percent by 2030, the World Bank said in February. The unemployment rate was 26.7 percent in the first quarter, the highest in at least eight years.
“Where we stand now, the numbers do not match the 6 percent annual growth” targeted in the government’s plan, Statistician General Pali Lehohla told reporters in Pretoria.
The statistics office took over the publication of expenditure-side GDP data from the central bank this year. Expenditure on GDP contracted by an annualized 0.7 percent as spending by households declined by an annualized 1.3 percent and fixed capital formation slumped by an annualized 6 percent, the statistics office said. Imports and exports both declined by an annualized 7.1 percent.