South Africa's economy suffered its sharpest contraction in a quarter of a century, declining by an annualised 6.4 per cent in the first three months of 2009 and confirming the first recession in 17 years.
Africa's biggest economy has been hard hit by global woes, with recession in developed countries slashing demand for its minerals and manufactured goods. The rand extended losses to over 2 per cent against the dollar after the economic data.
On an unadjusted basis, South Africa's economy shrank by 1.3 per cent compared to the first quarter of 2008, Statistics South Africa said today, compared to forecasts of a 0.2 per cent fall and pointing to a full year contraction.
Trade unions voiced horror at the decline and demanded action from new President Jacob Zuma, their close ally, who has in the past promised not to abandon policies favourable to business.
South Africa's Treasury said it expected the economy to shrink again in the second quarter, but not by as much, and pointed to a recovery on the horizon.
“We expect there will be an upturn in the second half of the year,” Treasury Director-General Lesetja Kganyago told reporters, adding there were tentative signs of recovery in the global economy.
The government forecast of 1.2 per cent expansion for this year, however, would likely be revised downwards in the Octobe budget statement, he said.
A Reuters poll of economists last week forecast the economy shrinking by an annualised 3.9 per cent in the first quarter.
The number, much worse than expected, will back the case for another 100 basis point cut in the central bank's repo rate on Thursday.
“It's bigger than what everybody had expected. This will definitely support our expectations for a 100 basis points interest rate cut,” said Christie Viljoen, economist at NKC Consulting.
“Although the central bank is kept busy with inflation, this economic weakening cannot be ignored.”
Manufacturing, which makes up about 17 per cent of the economy, fell by 22.1 per cent, the biggest decline since the statistics agency started keeping quarterly records in 1960, while mining shrank by 32.8 per cent, also the biggest fall on record.
Reuters