It's official: SA hits first recession in 17 years

South Africa’s economy shrunk by 6,4% in the first quarter of 2009 on a seasonally adjusted and annualised basis, compared to a contraction of 1,8% in the fourth quarter, official data showed on Tuesday.

The first quarter figure is the biggest fall since the third quarter of 1984 and puts Africa’s biggest economy in its first recession since 1992 on the back of a global downturn that hit the manufacturing and mining sectors.

A Reuters poll of economists last week forecast the economy shrinking by an annualised 3,9% in the first quarter.

On an unadjusted basis, the country’s economy shrunk by 1,3% compared to the first quarter of 2008, against forecasts of a 0,2% fall.

Fanie Joubert, economist at Efficient Group, said it was a “terible figure”.

“It’s much worse than what the market expected. It’s almost double what the market expected. This confirms that South Africa is in a technical recession and growth is under pressure.”

Dennis Dykes, chief economist at Nedbank, said the figure was “pretty awful”.

“There was always going to be a good chance that the number was going to be pretty big, but they are usually smoothed out when it comes to its reporting.

“This figure, however, is way above what the market anticipated and is not a great number at all.”

Annabel Bishop, economist at Investec, said: “The magnitude of the slowdown has caught officials by surprise and is hence supportive of further monetary easing. We continue to expect a 100bp cut in interest rates this week and a further easing in June and August.

“Recent SARB leading indicator data point to potentially an even bigger contraction in Q2.09 than in Q1.09.”

SACCI taken aback
Meanwhile, the South African Chamber of Commerce and Industry said it was taken aback by the magnitude of the decline.

“The decline firmly confirms what South African business people and consumers already know: South Africa is experiencing a recession. Businesses have been suffering the symptoms of a recession for many months,” said SACCI chief executive Neren Rau.

“As the new government plots its course, today’s GDP data issues a loud call for a rapid and comprehensive response to the economic recession that South Africa is currently experiencing. Equally loud is the call for government and labour to be sensitive to the economic reality that underpins the GDP data and to exercise restraint in making further demands on business in this vulnerable time.

“If these calls are not heeded, South Africa will find itself challenged not only in its ability to abate the economic decline but also in its ability to consolidate and gather momentum for an economic recovery,” Rau cautioned.

Bonds firm on data
Bond yields firmed by a few basis points on Tuesday morning. Bond traders said the poor GDP data has made the prospect of another rate cut virtually a given after the next Monetary Policy Committee meeting which gets under way on Wednesday.

By 11.35am the short-term government R153 bond was bid at 6,485% from its previous close of 6,465% and 6,535% before the release of the data.

The medium-term R157 was at 8,175% from 8,210% earlier and 8,160% at its previous close, while the long-term R186 was bid at 8,760% compared to 8,805% before the data release and 8,710% at Monday’s close.

The rand was last at 8,3678 to the dollar from a previous close of 8,2356.

“Bonds have firmed on the prospect of another rate cut this week after the disappointing GDP data,” a local bond trader confirmed. - Reuters, I-Net Bridge

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