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Cape Town – The steep decline in Gross Domestic Product (GDP) raises the risk of the economy tipping into a technical recession in the third quarter of 2015, FNB chief economist Sizwe Nxedlana warned on Tuesday.
Reacting to Statistics SA announcement that the GDP had contracted by 1.3% quarter-on-quarter (q/q) in the second quarter of 2015, Nxedlana said this unexpected contraction “is the worst decline in a year and a half and it follows a 1.3% increase in the first quarter of 2015”.
Analysts told Reuters that the latest economic data could restrain the SA Reserve Bank from hiking interest rates further after a 25 basis point increment in July, despite inflation pressures posed by the weaker rand.
"In such an environment we struggle to see the Reserve Bank justifying another 25 basis point rate hike at its September meeting," BNP Paribas Cadiz Securities economist Jeffrey Schultz told Reuters on Tuesday.
"For the moment we continue to pencil in one more 25 bp (basis point) rate hike in November, but acknowledge that the risk of further normalisation being pushed out to next year has increased."
READ: SA GDP contracts by 1.3% in second quarter
Nxedlana said the weakness in the agricultural sector (-17.4% q/q) largely reflects the drought that SA suffered earlier this year and the resulting decline in field crop production.
“The pressure on the other industries in the primary (-9.3% q/q) and secondary (-4.7% q/q) sectors is linked to a combination of power shortages, low commodity prices and weak domestic and international demand,” said Nxedlana.
“The steep decline in quarterly GDP raises the risk that the economy will tip into a technical recession in Q3 2015, defined as two consecutive quarters of negative growth,” said Nxedlana.
“This may depend on whether the recent wage disputes in the gold and coal industries result in strikes and lost production,” he said. “Compared to the second quarter of 2014, the economy grew by 1.2%, which was well below expectations.
“In the first half of 2015, GDP growth has been 1.6% year-on-year. This suggests that there are downside risks to our already below consensus forecast of 1.7% for full year GDP growth.”
Democratic Alliance Shadow Minister of Finance David Maynier said the economic slowdown means that the projected economic growth rate may fall below the 2% projected by the National Treasury, “which is far short of the 5.4% economic growth envisaged in the National Development Plan”.
“This will, in turn, impact negatively on revenue collection, which the South African Revenue Service reported this morning had fallen short by R2.94bn, or 0.9% of the revenue collection target, in the first quarter of 2015.
“However, most importantly the economic slowdown and possible recession is likely to lead to further job shedding, destroying the prospects of employment for the 7.6 million people looking for work in South Africa.”
