JOHANNESBURG – Statistics South Africa (StatsSA) reported on June 4 that the South African economy contracted by 3.2% quarter-on-quarter (q-o-q) during the first quarter of 2019 – the biggest decline in 10 years.
This resulted in the economy being no larger in 2019Q1 than it was a year earlier. This data release reflects poorly on President Cyril Ramaphosa’s ‘economic stimulus and recovery plan’, launched in September 2018. Information collected by Fin24 indicates that, out of 14 plans set out by the present last year, only two (expanding the VAT-exempt basket and finalising the national minimum wage) had been fully achieved by May this year.
Positive growth was limited to three tertiary sectors – 1) finance, real estate and business services, 2) general government services, and 3) personal services – with the other 7 sectors all recording a q-o-q decline in seasonally adjusted activity during January-March 2019. Mining activity dropped by 10.8% q-o-q – the worst decline in three years - as the industry suffered a strike in the gold division, amidst other challenges.
Manufacturing activity fell 8.8% q-o-q due to low domestic demand (in part tied to mine output) as well as a deteriorated export performance. The beleaguered construction sector contracted q-o-q for a third consecutive quarter, while loadshedding snapped at five-quarter growth sprint in utilities.
Due to the 3.2% q-o-q contraction in 2019Q1, the South African economy was no larger during the period than it was a year earlier: annual growth dropped from 1.1% y-o-y in 2018Q4 to 0.0% y-o-y in 2019Q1. Gross fixed capital formation – investment in and spending on physical infrastructure – has declined y-o-y for four straight quarters due to weak business confidence and pressure on state finances. Growth in net exports was also under pressure in 2019Q1 from a weaker external environment: the International Monetary Fund (IMF) indicated in April it expects global economic growth to slow from 3.6% in 2018 to just 3.3% this year.