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The economy’s decline in this year’s first quarter does not mean Ramaphoria has fizzled out, say economists, but it does show that new political leadership may take much longer to boost confidence than hoped.
The unexpectedly steep drop has also raised the spectre of a second- quarter contraction and another technical recession.
The hike in fuel prices this week of 82c a litre is expected to put further pressure on consumers. Prices at the pump are now at record levels of well over R15 a litre.
The economy shrank by 2.2% on a quarterly basis, the largest decline since the same period in 2009, according to Statistics South Africa, when the economy declined by 6.1% in the wake of the global financial crisis.
The contraction was driven predominantly by declines in agriculture, mining and manufacturing.
Despite a recovery during 2017, the agriculture sector shrank by 24.2%, the largest quarter-on-quarter fall since the second quarter of 2006, the agency said. This was chiefly because of the drought in the Western Cape.
The decline far exceeded expectations of a more modest contraction of about 11% for the quarter, said Wandile Sihlobo, the head of agribusiness research at the Agricultural Business Chamber, in a note.
The bulk of the winter crops such is wheat and stone fruits and grapes are predominantly grown in the Western Cape and typically harvested between November and March, which coincides with the first quarter. These fruits are also key drivers of agricultural exports, he noted.
The mining sector entered into recession, contracting by 9.9%, after a decrease of 4.4% in the last quarter of 2017. This was because of declines in the production of gold, the platinum group metals and iron ore, StatsSA said.
The gross domestic product numbers pointed to an export problem, said Isaah Mhlanga, a Rand Merchant Bank economist. “Exports have been weak despite strong growth in some of our major trading partners on a year on year basis,” he said.
Work stoppages in the mining sector could have reduced production, which meant that, as a commodity- producing country, South Africa had less to export, he added.
On the expenditure side, exports dropped by 16.5%, largely influenced by declining trade in base metals, and imports declined by 6.5%, driven largely by a drop in the importation of machinery, electrical equipment, vehicles and transport equipment, according to StatsSA.
Year on year, the economy showed a slight 0.8% growth.
The expectations associated with Ramaphoria could have gone to our heads, said Mhlanga. Although there had been an improvement in sentiment, this did not mean people had walked into shops and started buying products, he argued. Only once consumers and companies were more confident about economic prospects would this be translated into real spending or investment.
“We can’t say that Ramaphoria has fizzled out,” he said. “It is still in the works. We are likely to see it in the next couple of quarters.”
But weak annual growth will put the 2018 fiscal targets outlined by the treasury in the February Budget under strain, risking further credit rating downgrades, said Citadel chief economist Maarten Ackerman in statement. The muted annual growth was outstripped by the growth of the country’s population, meaning “South Africans as a whole are becoming poorer”.