Picture: THE TIMES
Picture: THE TIMES

The economy has entered its eighth recession since 1961, following a shocking contraction in the first quarter. This has upset the economic consensus, suggesting that the economy is in far greater distress than most realised.

Real GDP (measured by production) decreased by 0.7% q/q seasonally adjusted and annualised in the first quarter of 2017, following a decrease of 0.3% in the fourth quarter of last year. (Two consecutive quarters of negative growth means that the economy is in a technical recession.)

In fact, the economy has contracted in four of the previous eight quarters.

"This is among the worst performances recorded anywhere in the emerging world," says Capital Economics’ John Ashbourne, who describes the latest GDP figure as "disastrous".

The consensus expectation was for growth of 1% q/q in the first quarter, with only Rand Merchant Bank having forecast a contraction.

Even more alarming is that the economy is likely to perform worse in the second quarter as the effects of President Jacob Zuma’s cabinet reshuffle, which precipitated SA’s sovereign rating downgrade to junk status, were felt only after the end of March.

Given the close relationship between business confidence and fixed investment, a further retraction in confidence caused by rising political risk is likely to have a negative knock-on effect on the country’s overall growth rate.

In the first quarter, gross fixed investment grew by 1% q/q, bolstered by an almost 8% q/q rise in investment in machinery and equipment. If this turns negative in the second quarter, as expected, it will pull yet another prop out from under the economy.

In the first quarter, only two of the economy’s 10 sectors posted positive quarterly growth — mining (12.8%) and agriculture (22.2%). The eight other sectors either contracted or posted zero growth.

The manufacturing industry is already deep in recession. It contracted by a further 3.7% in the first quarter, its third quarterly contraction in a row.

But the worst-performing sector was trade, catering and accommodation, which plunged by almost 6% q/q. Even financial and business services shrank. These have been among the few reliable pillars of support for the ailing economy.

"This may suggest that high unemployment and stagnant wages are finally dragging down the long-resilient SA consumer sector," says Ashbourne.

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