South Africa's economy takes a deep dive into recession

South Africa's economy takes a deep dive into recession

The Bloomberg consensus was 0.6% growth.

"Even if the fiscal adjustment were to come from the expenditure side, it means that there is less investment and job creation from government, which will hold back better consumption numbers".

This follows a dismal performance in the first quarter‚ when GDP shrank by a revised 2.6%.

"This wasn't unexpected, however, as agriculture saw a huge boost previous year coming off a low base from the drought to increase around 17%". We knew this momentum couldn't last forever.

"The mining and quarrying industry increased by 4.9% and contributed 0,4 of a percentage point to GDP growth".

"The largest negative contributor to growth in GDP in the second quarter was the agriculture, forestry and fishing industry, which decreased by 29.2% and contributed -0, 8 of a percentage point to GDP growth", the report read.

South Africa also increased its import of goods and services by 3.1%.

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Africa's most developed economy needs faster economic growth if it is to reduce high unemployment - now at 27% - and alleviate poverty and inequality that stokes instability. "Low growth impacts on key revenue streams like tax collection, and given the already high strain on our fiscus, this growth figure is concerning".

"Clearly this is not what Ramaphosa would like running into the elections next year", he said.

"Ramaphosa's administration has been doing the right things and making the appropriate adjustments, but it will take time to be felt in the economy".

"We've got financials and banks under quite a lot of pressure, also South African credit retailers leading the fall", said Michele Santangelo, equity research director at Independent Securities.

This is South Africa's first recession since the 2008/09 global financial crisis.

"However, if Cyril Ramaphosa and his government continue with the current policy strategy as well as provide clarity on mining and land, I believe that there might be a surprise to the upside coming from the low base".

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