JOHANNESBURG - The optimism for an economic revival which greeted President Cyril Ramaphosa's inauguration in February, but has since waned, took another knock this week with news that South Africa had slipped into a recession.
Statistics South Africa said gross domestic product contracted by 0.7 percent in the second quarter, following a 2.6 percent shrinkage in the first three months of the year, weighed down mostly by the agriculture, transport and trade sectors.
The economy has struggled to recover meaningfully since taking a knock from a global recession a decade ago. Critics place most of the blame on Ramaphosa's predecessor Jacob Zuma, who succumbed to pressure to quit under a cloud of corruption earlier this year. Zuma denies being corrupt.
Hope of a turnaround with former businessman Ramaphosa at the helm have dissipated over the last few months.
The 1.5 percent growth estimated given by the National Treasury in February is currently at severe risk and will likely be revised downwards, Citadel chief economist Maarten Ackerman said.
"Additonally Treasury will need to find ways to fund items not budgeted for in February, such as above-inflation public sector wage increases, National Health Insurance and, President Ramaphosa’s economic stimulation package," he said.
"This means that it is going to be extremely difficult for government to remain within the budget targets and keep rating agencies happy."
South Africa has lost its investment grade credit rating with Fitch and S&P Global, and Moody's could well follow suit.
Reza Hendrickse, a portfolio manager at PPS Investments, said the contraction in the second quarter reflected the tough environment many South African listed companies had alluded to in recent results, adding that government plans to expropriate land without compensation -- with a view to redressing historical ownership imbalances created by white apartheid rule -- had hit business sentiment.
"Agriculture is clearly battling and was the largest detractor from growth this quarter," Hendrickse noted.
"Land reform has undoubtedly put a damper on business confidence, while increased consumer spending is not yet coming through despite the uptick in consumer sentiment seen in other surveys. It looks unlikely that SA will grow by more than one percent this year."
As the country gears up for elections next year, which Ramaphosa's ANC is still likely to win although its support might dip, the main opposition Democratic Alliance said the latest bleak economic data called for "real leadership".
"Business confidence in South Africa is taking a knock and despite attempts by President Cyril Ramaphosa to court big foreign investment, we are failing," it said.
"Government needs to send a clear signal to business on issues of policy."
Citadel's Ackerman however, said it would be wrong to lay the blame for poor economic performance on Ramaphosa "as it remains a legacy of ten years of economic mismanagement".
"Ramaphosa’s administration has been doing the right things and making the appropriate adjustments, but it will take time to be felt in the economy," he said.
"We do need clarity on land redistribution and mining policy before we will be able to really attract investments, but I believe that the first two quarters of this year are more of a spill-over of ten years of corruption and mismanagement than anything that the new government should take accountability for."
- AFRICAN NEWS AGENCY (ANA)