South Africa fell into a much deeper contraction in the fourth quarter than economists had expected, registering its second recession in less than two years.
Although the economy managed to achieve insignificant growth throughout 2019, the decline of 1.4% in the fourth quarter, compared to a forecast of 0.2% of economists polled by Bloomberg. The rand fell about 1%.
Data released by Stats SA on Tuesday show that, throughout the year, the economy grew by just 0.2%, down from 0.8% in 2018, the sixth consecutive year in which the SA economy grew below 2% and the lowest level since 2009, according to SA Stats.
The fourth quarter contraction, compared to a revised 0.8% contraction in the previous quarter. Stats SA had previously put this decline at 0.6%.
The economy is not growing at the pace necessary to keep pace with population growth at this level, which is about 1.4%, meaning that GDP per capita is expected to decline and South Africans are likely to become poorer.
The result is lower than the growth rates expected by the SA Reserve Bank and the Treasury, which predicted that the economy would grow 0.4% and 0.3% in 2019, respectively.
The result is also well below revisions to growth forecasts made by several multilateral agencies, including the International Monetary Fund, which expected South Africa’s economy to grow 0.7% in 2019.
The economy was hit hard by the power cuts, which started in earnest in December and are expected to continue for the next 18 months. The electricity concessionaire Eskom, which faces operational difficulties and requires regular financial support from the tax authorities, has been identified as a fundamental threat to the South African economy. At the same time, consumer and business confidence levels have declined, weighing on household spending and private sector investment.
The quarterly contraction was widespread, with almost all industries in the primary, secondary and tertiary sectors contracting. The only growth was registered by the finance, mining and personal services sectors.
On the expenditure side of the economy, growth contracted 1.2% in the fourth quarter, deeper than a revised 0.4% decline in the third quarter. One of the main contributors to the decline was a sharp 10% decline in gross fixed capital formation, which is seen as an indicator of fixed investment in the economy. Annually, GDP expenditures grew by just 0.1% throughout 2019.
To add to the internal problems of South Africa, the global economy is facing the possible economic effects of the coronavirus outbreak, which started in Wuhan, China.
On Monday, the Organization for Economic Cooperation and Development (OECD) warned that if the spread of the virus is not sufficiently contained, the pace of global growth could be halved.
The OECD has reduced its growth expectations in China – a major consumer of commodities SA – to less than 5% in 2020.