Tue 04 June 2019:
PRETORIA (Reuters) – South Africa’s economy saw its sharpest contraction in a decade in the first quarter of 2019 as power cuts hurt key sectors like manufacturing and mining, another sign that President Cyril Ramaphosa’s growth drive is struggling to gain traction.
Data on Tuesday showed the economy was 3.2% smaller in January-March than in the previous three months. The dismal reading lagged the 1.7% decline economists had expected and sent the rand sharply lower. “This was the largest economic contraction in almost a decade. … It was largely driven by manufacturing, then mining,” Statistician General Risenga Maluleke told a news conference. Year-on-year growth in the first quarter was zero compared with forecasts for growth of 0.7%, the statistics office said.
Investor confidence in Africa’s most industrialized economy remains fragile, despite Ramaphosa’s pledges to woo investment, create jobs and root out rampant corruption after his African National Congress (ANC) party won re-election last month. He faces formidable obstacles, including factional fighting within the ANC, weak consumer demand and ailing state firms like power utility Eskom, which was forced by capacity constraints to impose blackouts early this year. Although Moody’s still has South Africa’s credit rating at Baa3, the lowest rung of investment grade, economists fear the power crisis will ultimately cost the country that rating and lead to outflows of billions of dollars.
“The government really has very little time to start doing what it has to do.” Statistician Maluleke said load-shedding — a local term for controlled power outages — had contributed to the economy’s decline in the first quarter. Tuesday’s data showed mining output dropped 10.8% in the first quarter from October-December. Manufacturing output fell 8.8%, agriculture dropped 13.2% and construction declined 2.2%. But output edged up 1.1% in the finance sector.
A recent Reuters poll forecast the South African economy would expand by around 1% in 2019 as a whole, compared with growth of 0.8% last year, although analysts are likely to revise that view in light of the new data.