Contraction in economy looms in the first quarter
By Sunita Menon - May 17th, 09:16
Weak performances in the retail, mining and manufacturing sectors, which bore the brunt of the most severe power cuts the country has experienced yet, indicates that the economy contracted in the first quarter of the year.
The dismal data comes just a week after the ANC’s victory in last week’s general elections and underlines the scale of the economic challenges faced by President Cyril Ramaphosa, who has vowed to resuscitate the economy.
A weak first quarter will likely cause economists and institutions to revise down growth forecasts, keeping a lid on the economy for another year.
Load-shedding, which returned in November, resulted in a loss of tradable hours for retailers and a halt in production in the mining and manufacturing sectors.
Retail trade sales decreased by 0.7% in the first quarter of the year, data from Statistics SA showed. The retail sector is an important indicator of consumer spending, which drives growth in the economy as it accounts for just more than 60% of GDP.
Consumers also came under pressure in the first quarter with incremental increases in the petrol price and slightly higher inflation in March that eroded real disposable income growth.
This follows weak performances in the mining and manufacturing sectors last week. Mining production fell 3.4% in the first quarter and manufacturing 2.4%.
“This could be the worst performance since the first quarter of 2018,” Capital Economics economist John Ashbourne said.
The economy has not grown by more than 2% annually since 2013 and is struggling to gain momentum despite political changes and Ramaphosa’s efforts to weed out corruption and turn around key state-owned entities.
SA plunged into a recession in the first half of 2018 for the first time since the global financial crisis. The economy contracted 2.2% in the first quarter. In response, Ramaphosa announced an economic stimulus plan with a range of reforms.
Ramaphosa told investors at a Goldman Sachs conference on Wednesday that the government will speed up economic reforms and focus on sector-specific boosts.
“We know the constraints on the economy and we need to speed up on them. Following the technical recession last year, we embarked on an economic stimulus plan and identified a number of reform issues we had to address. That’s already underway,” he said.
“We need to look at every sector where there is weakness and lagged growth and what gives rise to it. What can be egged on to get things to perform better in these sectors?”
Analysts expect the economy to improve in April based on more positive surveys that suggest confidence and activity picked up, along with power-cut reprieves.
Despite an expected rebound, growth will not likely trend sustainably higher, FNB economist Jarred Sullivan said.
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