With South Africa reeling amid concerns of land expropriation, the rand tumbling amid broad emerging market fears and the local economy pressured by collapsing consumer spending, moments ago the Pretoria-based Statistics South Africa announced that Q2 GDP contracted at a 0.7% annualized rate, missing expectations of a 0.6% increase, and together with the sharp drop in Q1 GDP, South Africa has now officially entered its first recession since 2009.
There is a certain "rhyming" to this event because as Bloomberg notes, South Africa's new President Cyril Ramaphosa suffered the same false start as his predecessor nine years ago: a recession in his first six months in office.
The decline was largely due to a collapse in agriculture and the farming sector - to be expected at a time when white farmers don't know if they will be allowed to keep their land or have it be forcibly expropriated - and a parallel drop in consumer spending. Some more details from the report:
- Agriculture declined the most, recording an annualized 29.2% contraction
- Manufacturing shrank 0.3%
- Trade contracted 1.9%
The one positive was the mining sector where production expanded 4.9% Q/Q.
The rand fell 2.5% to 15.24 per dollar in Johannesburg on Tuesday. The currency has tumbled 18.8% YTD, with sentiment in the rand initially boosted after Ramaphosa came to power in December, ending Jacob Zuma’s corruption-plagued tenure of almost nine years, but that optimism quickly faded as structural reforms were not implemented fast enough while global trade wars emerging market turmoil has further sour sentiment, Bloomberg notes.