SA economy plunges into recession

(Oupa Nkosi)

(Oupa Nkosi)

The South African economy has gone into recession, at the same time that it tries to absorb continued political shockwaves in the wake of #GuptaLeaks and the recent cabinet reshuffle.

Statistics South Africa (StatsSA) announced on Wednesday, that the economy shrank by 0.7% in the first quarter of 2017.

This is the second consecutive quarter that the country’s gross domestic product (GDP) declined following a 0.3% contraction in the fourth quarter of 2016.

Two consecutive quarters of negative growth is the most widely accepted definition of a recession, according to StatsSA and the last one experienced by the country followed on from the global financial crisis during 2008 and 2009.

Despite hopes that a recovery in the agriculture and mining sectors would save South Africa from a contraction – steep declines in a host of other sectors outweighed the potential gains.

The trade and manufacturing sectors “were the major heavyweights that stifled production, with trade falling by 5,9% and manufacturing by 3.7%” StatsSA said.

Meanwhile the electricity, gas and water industry contracted by 4.8%, according to the agency, due largely due to a decreases in electricity produced in the first quarter.

The amount of water distributed also decreased driven by continued restrictions in some parts of the country still recovering from the drought, is said.

The news comes after a late night cabinet reshuffle by Jacob Zuma, prompted ratings agencies to downgrade South Africa’s credit rating. Although agencies S&P Global and Fitch held off from further downgrades last week, the recession is unlikely to boost the country’s prospects of a ratings improvement any time soon.  In its decision S&P retained its negative outlook for the country.

The news also comes as revelations over the #GuptaLeaks email cache continued to dominate headlines. 

In its decision last week S&P said “that political risks will remain elevated this year, which could undermine economic growth and fiscal outcomes more than we currently project.”

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