Africa's Second-Largest Economy South Africa Enters Recession


A recession is widely defined as two or more consecutive quarters of contraction.

After a revised 2.6 percent contraction in the first quarter, the latest data piled pressure on Ramaphosa who has promised a "new dawn" after his predecessor Jacob Zuma's scandal-tainted nine-year reign.

Farm output plunged 29.2 percent after a 33.6 percent slump in the first quarter.

This is due to a drop in the production of field crops and horticultural products, and the impact of drought.

"It is spooking the market it wasn't an expected print, a lot of analysts and ourselves were expecting a very modest second quarter print, but we certainly weren't expecting a negative". Industrial action within the industry, combined with a decline in freight transport, contributed to the slowdown.

"The trade, catering and accommodation industry decreased by 1.9% and contributed -0,3 of a percentage point to GDP growth".

South Africa's economy has fallen into recession for the first time since 2009.

The national Budget tabled in February forecasted growth to come in at 1.5% for 2018.

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"But now with 0.9% for the first half of the year, it's going to be extremely hard".

Godongwana says the technical recession is the result of a prolonged trend of slowing economic growth.

"I don't think people should panic".

In fact, according to Business LIVE editor Lukanyo Mnyanda, the recent recession could have devastating effects on the ANC's political campaign before next year's elections.

Following the revisions to growth figures for 2017, this makes it the first recession since the global financial crisis.

With the dismal growth path set to trump concerns over inflation, the central bank could be forced to hold lending rates, removing another factor that made South Africa's bonds sought after among emerging markets. "You will expect an economy to shrink if you increase VAT if you impose sugar tax if you have fuel increases that have led to us having the cost of living that is going to the roof", said Cosatu spokesperson, Sizwe Pamla.

Cyril Ramaphosa has not even been the president of South Africa for a year, and already things are not looking too great in the country.

"The gross domestic product numbers pose a particular challenge to President Ramaphosa", said Roland Henwood, a political science lecturer at the University of Pretoria.