Africa growth story suffers: South African GDP shrinks for first time since 2009
Incidentally, the 24.7% decline in mining output was the biggest quarterly contraction since 1967 as Africa’s most advanced economy reels under the longest and costliest strike yet in the platinum mining space. (Image: Mining Recruitment Jobs)
South Africa’s economy shrank more than one-half a percent in the first quarter of the year, in what is its worst performance since the global recession five years ago.
On a year-on-year comparison, the economy had expanded 3.8% in the fourth quarter of 2013.
The 0.6% quarter-on-quarter GDP dip in the first three months of this year has resulted from a massive decline in output from the platinum mining sector, where strike has entered its fifth month.
Incidentally, the 24.7% decline in mining output was the biggest quarterly contraction since 1967. The platinum strike is acting as a bottleneck for mines that normally account for 40% of global production of the precious metal.
The government has made a new pledge to mediate the labor dispute, saying mining companies “have not done enough to address the well-being of workers.”
However, while three mining companies are negotiating with mine workers represented by the Association of Mineworkers and Construction Union, little progress has been made so far on pay hikes.
“The main contributors to this decrease in economic activity were the mining and quarrying industry (-1.3 percentage points) and the manufacturing industry (-0.7 of a percentage point),” stated Statistics South Africa.
Positive contributions by other industries included finance, real estate, and business services (0.4 of a % point), the wholesale, retail, and motor trade, catering and accommodation industry (0.3 of a % point), and the transport, storage, and communication industry and general government services (each contributing 0.2 of a % point).
In absolute terms, GDP was estimated at Rand 874 billion for quarter one of 2014 – Rand 2 billion less than the previous quarter.
Finance, real estate and business services grew by R7bn to R172bn, while agriculture, forestry, and fishing expanded by R6bn to R15bn. Construction also showed upwards growth to R31bn – R4bn up from the last quarter.
Wholesale, retail and motor trade, catering and accommodation were the worst off, contracting by R16bn to R127bn while mining and quarrying declined by R6bn to R67bn.
Overall, the main sectoral components of the South African economy were finance, real estate and business services at 22.3%; general government services at 17.4%; wholesale, retail and motor trade; catering and accommodation industry at 16.4%; and finally, the manufacturing industry at 11.8%.
Economists polled by Reuters had expected an overall quarter-on-quarter contraction of 0.1%, while forecasting year-on-year growth of 1.9%.
On the news of the quarterly contraction, the rand fell nearly one percent to a session low of 10.44 against the dollar.
Meanwhile, the SA Chamber of Commerce and Industry (SACCI) on Tuesday expressed concern about South Africa’s shrinking economy.
The SA Reserve Bank’s decision to hike its key lending rate by 50 basis points to 5.5% was seen as a contributing factor to the weak economic growth in the first quarter of the year. It was the first increase since June 2008.
As a result of the worse-than-expected economic performance in the first quarter from January to March 2014, the central bank slashed its 2014 growth forecast to 2.1% from 2.6%.
Finally, the African Economic Outlook recently issued by the African Development Bank, the United Nations Development Program and the Organization for Economic Cooperation and Development stated that strike-afflicted and weighed down by the slowdown in developed economies, the South African economy is imposing a drag on Sub-Saharan African growth.
Sub-Saharan African economies will grow by 5.8% this year and by 5.9% next year, but the rate is a full percentage point higher if South Africa is excluded from the calculation, the report said, noting that Africa’s second largest economy would grow only 2.7% in 2014 and 3% in 2015.