• Wednesday, July 24, 2024
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South Africa’s economy contracts in third quarter

south african economy

South Africa’s economy contracted in the third quarter, compounding the problems facing President Cyril Ramaphosa in Africa’s most industrialised nation.

Gross domestic product in the continent’s second-biggest economy fell at an annualised rate of 0.6 per cent in the three months to the end of September, South Africa’s official statistics authority said on Tuesday.

Economists had forecast a rise of 0.1 per cent. The disappointing data weighed on the rand, which fell nearly 1 per cent against the US dollar.

Under Mr Ramaphosa, South Africa has battled to exit a long period of sluggish growth that set in under Jacob Zuma, his predecessor.

Delays in reforms to near-bankrupt state companies, infighting in the ruling African National Congress and worries about rising levels of government debt have sapped business confidence.

In the second quarter the economy had rebounded at a rate of more than 3 per cent, after contracting in the first three months of the year when rolling blackouts at the troubled electricity monopoly, Eskom, hobbled industry.

But in the third quarter key economic sectors including mining, farming and manufacturing all recorded sharp declines. Mining activity dropped more than 6 per cent.

“The strong growth in Q2 was a brief rebound rather than evidence of real growth momentum,” said John Ashbourne, senior emerging markets economist at Capital Economics.

“While economic activity in South Africa is increasingly volatile, the trend of progressively weaker growth is clear.”

The return to contraction means the economy is likely to grow at a rate of 1 per cent or less this year, below the level of population growth.

The South African Reserve Bank, which kept rates at 6.5 per cent last month, has forecast growth of 0.5 per cent this year.

That would mean the sixth consecutive year of declining GDP per capita in South Africa, according to the IMF.

“With low growth and low job creation, the increasing labour force is projected to exacerbate unemployment pressures, poverty, and inequality,” it said last week.

Low growth is a problem for South Africa’s ballooning government debts, which are on the verge of losing their last investment-grade credit rating from Moody’s, the only rating agency yet to downgrade the country’s debt to junk status.

According to the finance minister Tito Mboweni, current government debt levels of 3tn rand ($205bn), approximately 60 per cent of GDP, are set to rise to 80 per cent of GDP by the middle of the 2020s.

Costly bailouts for Eskom, which can no longer keep up payments on its own $30bn debts and is struggling to keep the lights on, have left Mr Mboweni, in office since October 2018, with little fiscal room for manoeuvre.

Last month Moody’s cut its outlook for South Africa from stable to negative and slashed its own forecasts for medium-term growth to between 1 per cent and 1.5 per cent.

The economy was growing at about 4 per cent a year until the 2008 financial crisis. Since then, growth in productivity has collapsed, adding to deep structural problems from the days of apartheid-like a dysfunctional education system — that impede progress.