South Africa fell into its first recession since 2009 during the first half of the year, despite early optimism over the country’s economic prospects when Cyril Ramaphosa replaced the corruption-hit Jacob Zuma as president.
Output in sub-Saharan Africa’s most industrialised nation fell 0.7 per cent in the second quarter, on top of a 2.6 per cent contraction during the first three months of 2018, South Africa’s official statistics agency said on Tuesday.
The South African rand fell more than 2 per cent against the US dollar following the release of the data, hitting its lowest level since early 2016.
Agriculture, trade and manufacturing all recorded declines in activity in the second quarter, the statistics agency said. The first quarter contraction was also steeper than initially estimated, it added.
“The starting point was even worse than we had assumed,” said Razia Khan, chief Africa economist for Standard Chartered. “South Africa will have to try harder to achieve positive growth. Positive political change on its own is not going to be sufficient.”
South Africa’s economy has failed to grow more than 2 per cent a year since 2013, and faces serious structural obstacles such as unemployment of more than 27 per cent. Rising fuel prices have recently increased the pressure on South African consumers.
The return to recession underscores the challenge for Mr Ramaphosa in turning round a long period of stagnation under Zuma, who was forced out of office earlier this year after losing control of the ruling African National Congress.
Ramaphosa, a trade union leader turned tycoon who won a power struggle to become ANC leader, came into the presidency with a pledge to bring an economic “new dawn” and attract $100bn of foreign investment.
In his first steps Mr Ramaphosa boosted business sentiment by replacing the boards of economically crucial state-owned enterprises compromised by graft under Mr Zuma. He also appointed a technocrat finance minister and removed allies of Mr Zuma from his cabinet.
More recently Mr Ramaphosa secured pledges of billions of dollars of investment from the Gulf and China.
But investors remain wracked by uncertainty over regulations in key parts of the economy, particularly mining. The industry has grappled this year with the ANC over draft rules setting new targets on local ownership of mines.
Mr Ramaphosa has also sought to reassure investors that proposals by the ANC to speed up land reform will not compromise property rights. The party is debating a constitutional amendment to allow expropriation without compensation in some circumstances, in order to tackle post-apartheid inequality.
Weak growth also poses a dilemma for the South African Reserve Bank, which recently signalled that it would keep interest rates at current levels rather than cut them amid instability in other emerging markets.
On Tuesday the SARB governor, Lesetja Kganyago, told the Financial Times “there is not much monetary policy space” to boost growth. “Our monetary policy stance as it stands now is accommodative,” he said.
But the central bank would also “look through” recent rises in oil prices and the weakening of the rand and wait to see if they had a deeper impact on inflation and the economy before it raised rates, Mr Kganyago added. The bank is forecasting 4.8 per cent inflation this year, around the middle of its target band.
Mr Kganyago said structural reforms by the government would have more impact on increasing growth than central-bank policy. “Hopefully somebody is listening,” he said.
