South Africa Unexpectedly Plunges Into Recession

Despite expectations (among 19 'economists') that growth would be up 1.0% in Q1, South African GDP tumbled 0.7% (the second drop in a row) pushing the nation back into recession after eight years.

The median of 19 economists’ estimates in a Bloomberg survey was for 1 percent expansion. There was only one forecast for a contraction. This was a four standard deviation miss...

 

Indicating contraction for the second quarter in a row - technically signaling a recession -  as all bar two industries shrank.

"We can now pronounce that the economy is in recession," Statistics South Africa Deputy Director General Joe de Beer said. "The major industries that contracted in the economy were the trade and manufacturing sectors."

The Rand retraced some its recent gains on the GDP print...

As Bloomberg reports, while rains are helping Africa’s most-industrialized economy recover from a 2015 drought that was the worst since records started more than a century earlier, political uncertainty has hampered implementing reforms aimed at boosting growth. President Jacob Zuma changed his cabinet and fired Pravin Gordhan as finance minister in March, a move that saw the nation lose its investment-grade status with two ratings companies for the first time in 17 years.

“There is a risk that these contractions are not over and we could see another negative coming out in the second quarter of this year,” Annabel Bishop, the chief economist at Investec Ltd., said by phone from Johannesburg.

 

“The rating agencies, even if they have already done their assessments, will no doubt be downgrading their GDP outlook off the basis of these numbers,” Gina Schoeman, an economist at Citigroup Inc. in Johannesburg, said by phone.

 

Christie Viljoen, an economist at KPMG LLP in Cape Town, said by phone, “I’m not excited about a big turnaround in the GDP numbers for the second quarter, there’s just no reason to believe that at this stage.”

This miss follows the central bank on May 25 reducing its forecast for growth this year to 1 percent from 1.2 percent, and trimmed the outlook for 2018 to 1.5 percent from 1.7 percent because of the anticipated impact of the downgrades.