South Africa’s gross domestic product (GDP) declined by 3.2% in the first quarter of 2019, the largest quarterly drop in GDP in 10 years, with economists blaming Eskom’s load-shedding for the contraction.
Statistics South Africa (StatsSA) released the country’s economic output on Tuesday with the main contributors to the collapse being manufacturing (-8.8%), mining (-10.8%) and agriculture (-13.2%).
Economist Mike Schussler says these negative numbers are due to the effects of load-shedding seen in February and March this year. “Load-shedding, corrupt activities at Eskom and mismanagement play a role.”
Economists had cautioned GDP growth would fall, but Schussler says this is a huge drop. “We are now doubtful that we are going to reach a 1.5% growth in 2019.”
Manufacturing industry decreased by 8.8% and contributed -1.1 of a percentage point to GDP growth. Seven of the ten manufacturing sectors, petroleum, chemical products, rubber and plastic products; motor vehicles, parts and accessories and transport equipment; wood and wood products, paper, publishing and printing divisions, reported negative growth rates in the first quarter.
The mining and quarrying industry contracted by 10,8% and contributed -0.8 of a percentage point to GDP growth while decreased production was reported for ‘other’ mining and quarrying (including diamonds), iron ore and coal.
“We should be locking up a lot more of people [who are involved in corruption] – because this is really enslavement of us as citizens — now South Africans will continue to be poor,” said Schussler.
“We need this economy to grow and we cannot talk about another commission.”
The only way to decrease the unemployment rate and turn the economy around is by increasing our GDP, he added.
Three out of the five last quarters with Cyril Ramaphosa as president have been negative — and this is a big problem, Schussler said.
Last year, the country went into a technical recession after GDP decreased by 0.7% in the second quarter following a decline of 2.2% in the first quarter.
Kevin Lings, chief economist at Stanlib says this drop will reverse the overall GDP forecast for 2019 to 0.7%.
“We now forecast SA GDP growth [for 2019] to around 0.7%, which is well down on early 2019 estimates of almost 1.5%. Unfortunately, the risk to the 0.7% forecast in 2019 is still to the downside given the weak business confidence, slowing household income and a weakening global economic environment,” he said.
Jameel Ahmad a global head of currency strategy and market research at ForexTime (FXTM), a forex broker company, says developing countries are affected by what is happening globally and it shows in the latest GDP results.
“What we do know is that emerging markets are having to contend with a tornado of different external headwinds, and these include persistent trade tensions that are adding further downside anxieties to economies that are reliant on resilient global demand,” he said.
“South Africa is just one of the many nations that is heavily exposed to the fears of another world recession arising at the turn of the next decade. The problem that is not helping South Africa, or other emerging markets across the world, he said, noting the latest manufacturing purchasing managers’ indexes across the world are confirming further contractions”, said Ahmad.
Only three sectors, government services (1.2%); personal services (1.1%); and finance, real estate and business services (1.1% ), showed growth.