South Africa’s economy was pushed deeper into contraction in the first quarter of this year, even before the full force of the coronavirus pandemic hit Africa’s most industrialised economy.
South African GDP fell 2 per cent in the first three months of the year, compared with the last quarter of 2019, the South African statistics office said on Tuesday.
The decline, a drop of 0.1 per cent on a year-on-year basis, followed the country’s descent into its second recession in as many years at the end of last year, when severe power blackouts were then the biggest problem facing President Cyril Ramaphosa’s government.
Mr Ramaphosa ordered one of the world’s longest and strictest lockdowns as the pandemic arrived in South Africa at the end of March, which is likely to have pushed the economy into a far deeper downturn.
Tito Mboweni, Mr Ramaphosa’s finance minister, said in a budget update last week that overall this year the economy is likely to contract by more than 7 per cent, the biggest downturn since the Great Depression of the 1930s.
South Africa was already emerging from its weakest decade for growth on record under Jacob Zuma, Mr Ramaphosa’s predecessor. On a per-head basis GDP has been falling since 2013.
“When an economy’s starting point — even prior to the Covid lockdown — is an unemployment rate that is over 30 per cent, it is difficult to imagine what further deterioration looks like,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered.
The first-quarter downturn was driven by mining and manufacturing, two pillars of the economy. It also included a plunge in gross fixed capital formation of more than 20 per cent, the worst reading for the investment measure since the 2008 financial crisis.
Battered public finances and expensive bailouts for state firms have left little room for fiscal stimulus, and Mr Mboweni is trying to control a budget deficit that is expected to reach almost 16 per cent of GDP this year.
“There is no room to continue to spend ineffectually . . . There is no room left to continue to get it wrong,” Ms Khan said.
As lockdown measures have become economically unsustainable Mr Ramaphosa is gradually reopening the economy while there is a surge in confirmed coronavirus cases, particularly in the country’s industrial hub, Gauteng.
South Africa has recorded more than 144,000 cases, of which more than 42,000 were detected in the past week.
Zweli Mkhize, the health minister, said on Tuesday that cases in Gauteng were rising faster than expected and did not rule out returning to tighter restrictions locally.
“There may be need in some areas for restrictions, it may not be national but localised. But no such decision has been taken as yet,” he told national radio.
There are signs that confirmed new cases are levelling off in Cape Town, where the country’s first big hotspot emerged, but its hospitals remain under pressure.
Source: Economy - ft.com
