UPDATE 1 – South Africa’s GDP shrinks two pct in first quarter, third contraction in a row

CAPE TOWN, June 30 (ANA) – South Africa’s economy contracted by two percent in the first quarter of 2020, slipping deeper into recession as output in the key mining and manufacturing sectors plunged, the national statistics agency said on Tuesday.

The mining sector shrank by 21.5 percent while the manufacturing industry fell 8.5 percent, with seven out of ten manufacturing divisions contracting in the first quarter, Statistics South Africa said.

Gross domestic prodcut (GDP) contracted 1.4 percent in the final quarter of last year, pushing South Africa into a technical recession. 

In monetary terms, the mining sector was down by R19 billion (about US$1.1 billion) in the first quarter, with production of iron ore, manganese ore, other metallic minerals and chromium declining.

In the manufacturing sector, the petroleum, chemical, rubber, plastic, iron and steel, machinery and motor vehicle divisions drove the sharp decline.

The electricity, gas and water sector declined by 5.6 percent and the construction industry by 4.7 percent as the economic impact of a national lockdown in response to the worldwide coronavirus crisis became stark. Collectively, the secondary sector shrank by 7.5 percent.

Exports of goods and services were down 2.3 percent, with the slump in the mining industry as well as that in travel services contributing to the retreat. However, net exports strengthened.

Government expenditure rose by 1.1 percent and household expenditure by 0.7 percent during the quarter, the latter driven up by spending on food, beverages, tobacco products and narcotics, Stats SA said. However, spending on transport and clothing declined.

Overall, expenditure on real gross domestic product fell by 2.3 percent, dragged down by investment spending and a draw-down on inventories as the economy came to a near halt from late March. 

“There was a R67.3 billion (US$3.9 billion) draw-down of inventories in the first quarter of 2020. Large decreases were reported for the mining, manufacturing and trade industries,” Stats SA said.

Gross fixed capital formation fell by 20.5 percent as demand for machinery and equipment, notably transport equipment, declined.

Agriculture, forestry and fishing increased by 27.8 percent, driven by increases in the production of field crops, horticultural and animal produce and contributed 0.5 percent to GDP in the period.

The statistics agency said finance, real estate and business services increased by 3.7 percent, reflecting greater demand for financial intermediation, insurance and pension funding and other business services.

Imports of goods and services decreased by 16.7 percent as demand for machinery, equipment and travel services fell.

Tuesday’s figures confirmed a bleak outlook for an economy that was battling record unemployment and spiralling debt even before the Covid-19 pandemic. The National Treasury expects GDP to shrink by 7.2 percent in 2020, the biggest contraction in 90 years. 

Finance Minister Tito Mboweni last week tabled an adjustment budget in response to the health crisis and said the government would aim to stabilise debt at 87.4 percent of GDP in 2023/24.

However ratings agencies, which have pushed the country further into junk territory in recent reviews, question the state’s ability to stick to the target.

– African News Agency (ANA), Editing by Stella Mapenzauswa