PRETORIA (Reuters) - South Africa has entered recession for the first time in eight years, data showed on Tuesday, piling pressure on a government facing corruption allegations and credit downgrades.
Data from Statistics South Africa showed the first quarter contraction was led by weak manufacturing and trade, suggesting high unemployment and stagnant wages were dragging down South Africa’s long-resilient consumer sector, analysts said.
Political instability, high unemployment and credit ratings downgrades have dented business and consumer confidence in South Africa and the rand extended its losses against the dollar, while government bonds also weakened.
South Africa’s economy contracted by 0.7 percent in the first three months of 2017 after shrinking by 0.3 percent in the fourth quarter of last year, lagging market expectations of a quarter-on-quarter GDP expansion of 0.9 percent.
It was the first time two consecutive quarters showed contraction — a definition of recession — since the second quarter of 2009, although there have been individual quarters of so-called negative growth in more recent years.
A consumer frenzy helped the South African economy grow by an average 5 percent a year in the five years before the 2009 recession, but it has struggled to register much growth since.
“The slowdown in Q1 was due to much worse results from usually stable consumer-facing sectors that had been the key drivers of growth in recent years,” Capital Economics Africa economist John Ashbourne said.
The worst performing sector was trade, catering and accommodation, which contracted by 5.9 percent, while manufacturing - one of the key sectors - fell by 3.7 percent.
Standard Chartered Bank’s Chief Africa Economist Razia Khan said the “awful” data showed weakness where it was not expected.
The poor growth numbers will pile more pressure on the ruling African National Congress (ANC) to get the economy back on track faster as it tries to stave off further credit ratings downgrades and stem falling voter support.
Pressure on President Jacob Zuma, including from within the ANC, has risen since a controversial cabinet reshuffle in March that led to downgrades to “junk” status by S&P Global Ratings and Fitch and allegations of influence peddling. [nL8N1IV2XP]
Zuma has denied any wrongdoing over the allegations.
Corruption allegations escalated when local media reported this week on more than 100,000 leaked emails they say show inappropriate interference in lucrative tenders. [nL8N1J244M]
“Our economy is now in tatters as a direct result of an ANC government which is corrupt to the core and has no plan for our economy,” Mmusi Maimane, the leader of the opposition Democratic Alliance, said.
South Africa’s Treasury has said it would work to finalise policies critical for boosting confidence and economic growth. [nJ8N1GZ01K]
S&P Global Ratings and Fitch last week said risks to South Africa’s ratings include weak economic growth and political uncertainty ahead of the ANC conference in December when a successor to Zuma as party leader will be chosen. [nL8N1IZ4E0]
Zuma can remain as head of state until an election in 2019.
Moody’s — whose Baa2 rating is two notches above “junk” — is reviewing South Africa for a possible downgrade.
Writing by Olivia Kumwenda-Mtambo; editing by Jeremy Gaunt and Alexander Smith