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South Africa’s Economy Contracts in Fourth Quarter as Mining, Manufacturing Slip

South Africa’s Economy Contracts in Fourth Quarter as Mining, Manufacturing Slip
  • PublishedMarch 7, 2017

South Africa’s economy contracted 0.3 percent quarter-on-quarter in the final three months of last year as mining and manufacturing output shrank, the statistics agency said on Tuesday, putting credit ratings at risk.

Africa’s most industrialised economy faces the risk of being downgraded to junk status owing to weak economic growth after it got a reprieve last year. S&P and Fitch’s ratings are one level above junk status, with Moody’s two notches above.

Poor economic growth has stymied revenue collection, and there is no major turnaround imminent with the Treasury expecting growth of just 1.3 percent this year, well short of the government’s target of 5 percent annual growth.

The rand briefly trimmed gains against the dollar, and was trading at 12.9675 at 1100 GMT after touching a session high of 12.9300 earlier.

“The decline was largely driven by lower production in mining and manufacturing. The primary sector is continuing to show a declining trend,” said Michael Manamela, chief director for national accounts at Statistics South Africa.

The mining sector fell 11.5 percent in the quarter, while manufacturing was down 3.1 percent.

As well as struggling with a volatile political environment, South Africa has been plagued by falling commodity prices and a chronically high unemployment rate.

On a year-on-year basis, the economy grew at 0.7 percent in the fourth quarter, unchanged from the previous quarter.

After growing 0.4 percent quarter-on-quarter in the three months to September, the economy shrank by 0.3 percent in the quarter to December, the statistics agency said. The figure lagged the 0.5 percent growth expected by economists polled by Reuters.

The economy grew by 0.3 percent in 2016 versus 1.3 percent in 2015.

Fiscal consolidation will remain difficult,” Standard Chartered Bank’s Chief Africa Economist Razia Khan said, adding the economy was not growing enough to make a positive difference to key credit metrics.

“Debt ratios still look troubled. Nothing can be taken for granted. South Africa needs greater economic momentum, but it remains unclear what might drive that,” Khan said.

Capital Economics Africa economist John Ashbourne said in a note the data fell slightly short of what was expected “but the worst is now behind us.” He said underlying figures support the view that growth would pick up faster than most expect in 2017.

A survey showed on Friday that private sector activity remained in growth territory for a sixth straight month in February as businesses saw a small rise in new orders, leading them to increase output and employment.

Reuters

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