File picture: Philimon Bulawayo
File picture: Philimon Bulawayo

Recession: South African economy shrinks by 0.7%

By Pali Lehohla Time of article published Jun 6, 2017

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The South African economy moved into recession with the reported decrease of 0.7% in GDP during the first quarter of 2017, on the back of a 0,3% contraction in the fourth quarter of 2016. South Africa has experienced seven economic recessions since 1961, the longest occurring over two years, 1991 and 1992, mainly as result of a global economic downturn and the political specificities of South Africa then. The most recent recession occurred over three quarters in 2008/09, on the back of the global financial crisis.

We observe that in the first quarter of 2017, both the secondary and tertiary sectors recorded negative growth rates. The trade and manufacturing industries were the major heavyweights that stifled production, with trade falling by 5,9% and manufacturing by 3,7%.

On the positive side, agriculture and mining industry contributed positively to growth, but not enough to avoid the recession.

Trade experienced production falls across the board, particularly in catering and accommodation and wholesale trade. Manufacturing found itself hamstrung by lower production levels primarily in food and beverages and petroleum and chemical products.

Possibly the most important aspect this quarter’s results is the tertiary sector. The sector – comprising the finance, transport, trade, government and personal services industries – recorded its first quarter of decline since the second quarter of 2009, when South Africa was in a recession as well.

However, from agriculture we observe that for the first time since the fourth quarter of 2014 that the industry has shown any growth. A jump in production in field crops and horticultural products lifted the industry in the first quarter. This might be one of the first signs of recovery from one of the toughest droughts in recent history.

Mining’s growth was mainly a result of a rise in production of gold and ‘other’ metal ores, including platinum.

Stats SA publishes estimates of GDP every quarter. It is one of the most anticipated statistical releases on the calendar as it captures the dynamics of the economy in a single number. The key number is expressed as the seasonally adjusted annualised growth between two consecutive quarters, based on GDP in real terms.

But how do we know if the latest GDP was a weak or strong number? There is no easy answer to this question, as a higher number is always preferable. Analysts usually like to put GDP performance into some kind of context by comparing it with historic averages, and/or targets as set out in government plans, and/or the economic performance of major trading partners and other countries in the region or at a similar stage of development.    

Dr Pali Lehohla is South Africa Statistician-General and Head of Stats SA

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