File image: The Johannesburg Stock Exchange. (File picture: Siphiwe Sibeko).
JOHANNESBURG - Financial stocks yesterday fell alongside the rand after Statistics South Africa (Stats SA) said the country’s economy shrunk to its worst in nine years in the first quarter, laying bare the mammoth task facing the Cyril Ramaphosa administration in reviving a moribund growth-domestic product.

The key banks index bled 3.20percent, with Barclays Africa leading the rout, shedding 3.38percent to close at R162.75, while FirstRand eased 2.76 percent to R61.60 and Nedbank 3.39percent to R274.94.

Standard Bank weakened 3.91percent to R208.15 and Capitec 3.60percent to R894.10.

StatsSA said its seasonally adjusted and annualised figures revealed that South Africa’s economy contracted by 2.2percent from the previous quarter, bringing real economic growth for the year to March 2018 to just 0.8percent.

Citadel chief economist Maarten Ackerman said the question now was whether the economy would avoid a further contraction in the second quarter of that would push South Africa into a technical recession.

“Weak first-quarter growth will definitely put the 2018 growth targets outlined in February’s Budget Speech under strain, and could result in the National Treasury’s fiscal targets being missed,” Ackerman said. “Missing these targets would then place South Africa at increased risk again of further credit rating downgrades”. The rand weakened to R12.77 to the dollar.

The mining sector contracted 9.9percent during the quarter, extending the 4.4percent drop in the fourth quarter, mainly due to lower production of gold, platinum group metals and iron ore.

Manufacturing decreased 6.4percent, the biggest drop since the second quarter of 2015, and reversing from a 4.3percent gain in last quarter.

The agriculture, forestry and fishing industry slumped 24.2percent, reversing from a 37.5 percent growth in the last quarter.

This was the sector’s largest quarter-on-quarter fall since the second quarter of 2006. StatsSA said the decline in agriculture was mainly because of a drop in production of field crops and horticultural product.

Bianca Botes, an analyst at Peregrine Treasury Solutions, said the positive market sentiment that accompanied former President Jacob Zuma’s ousting and Ramaphosa’s elevation had failed to translate into economic growth thus far.

“The rand is expected to remain under pressure, given weak local fundamentals and conditions in the overall global geopolitical landscape,” Botes said.

Last year, agriculture’s relatively strong performance became one of a few factors that helped keep the economy afloat in 2017.

South Africa has received robust growth expectation from S&P Global ratings, which have forecast growth this year to reach 2percent, while the Organisation for Economic Co-operation and Development has put growth at 1.9percent.

The South African Reserve Bank has forecast growth of 1.7percent, while the World Bank forecast a modest growth of 1.4percent, and the IMF expects growth to hit 1.8percent.

Elize Kruger, an analyst at NKC African Economics, said South Africa’s fiscal challenges would also remain a constraint for some years to come.

“The extent of the contraction in the first quarter has caught us by surprise and has informed a downward revision to our GDP growth forecast.

“We now forecast real economic growth at 1.5percent in 2018, previously 1.9percent,” Kruger said.