S. Africa slips into recession as GDP contracts in Q2


SA officially entered a technical recession following a 0.7% contraction in second-quarter GDP after a 2.6% (revised up from 2.2%) contraction in the first quarter.

Also, the second-quarter's gross domestic product (GDP) reading is said to be worse than the 0.6 percent expansion which had earlier been predicted by the country's analysts.

South Africa slides into recession amid failing government reforms Massive declines in the agricultural, transport and retail sectors have dragged the South African economy into recession after almost a decade of growth.

"Even if the fiscal adjustment were to come from the expenditure side, it means that there is less investment and job creation from government, which will hold back better consumption numbers".

TNG reports the widely recognized indicator of recession is two (or more) consecutive quarters of negative growth (real GDP quarter-on-quarter).

In the tertiary sector, declines in wholesale & retail activity (-1,9% q-o-q) and transport & communication (-4,9% q-o-q) continued to contrast strongly with the recoveries seen in surveyed consumer and business confidence, respectively.

The Congress of South African Trade Unions (COSATU) has blamed the recent slump on the government's policies and it's high dependence on foreign direct investment to revamp the failing economy.

News that South Africa's economy has slumped into recession left the market reeling on Wednesday with the JSE All-Share index losing ground, while the rand gave up 3% to a stronger United States dollar. Mining output grew by 4.9% and finance by 1.9%, however.

The rand has also been pressured by a risk-off mood that has swept through global markets in the wake of financial turmoil in Turkey and Argentina.

At 0944 GMT, the rand traded 2,25 percent weaker at 15,2150 versus the dollar. "Furthermore, a low GDP growth remains a sovereign credit rating weakness and this together with the ongoing populist direction of some of SA's actual and proposed economic policies continue to damage investor sentiment and therefore economic growth", says Lara Hodes at Investec.

"Given our fiscal deficit and the need to close it, it is nearly certain that taxes will have to be increased at next year's budget review, which again eats into disposable income", says Muscat.