FINANCE

South Africa likely already in a technical recession

South Africa’s economy probably entered a technical recession with a second straight quarterly contraction, according to an index that tracks interbank payments.

The BankservAfrica Economic Transactions Index, an early indicator of economic activity, dropped 1.7% in the first quarter compared with the prior three months. A median estimate in a Bloomberg survey of analysts is for a quarterly gross domestic product expansion of 0.2%.

Severe power cuts, a 50 basis-point hike in interest rates last month and inflation remaining sticky are “holding the economy at ransom,” independent economist Elize Kruger said in a statement on Wednesday. Dilapidated logistics networks are also hobbling economic activity.

The BETI is signalling the probability of a negative quarter-on-quarter number for the first three months, “which would mean that South Africa could dip into a technical recession,” Kruger said in response to emailed questions. Gross domestic product contracted by 1.3% in the final quarter of last year.

“It is becoming increasingly clear that the weakness in the economy has become quite broad-based, with most sectors under severe pressure,” she said.

Annual manufacturing production fell 5.2% in February, a fourth straight decline and the steepest since April last year. The purchasing managers’ index compiled by S&P Global, which measures the performance of the private sector, declined to 49.7 last month, signalling a contraction.

A recession will sap tax revenue and may stymie government efforts to reduce a 32.7% unemployment rate, rein in debt and narrow the budget deficit at a faster pace. The consolidated budget shortfall is forecast to decline to 3.2% in 2025-26 from 4.2% in the fiscal year through March 2023, according to Treasury estimates.

“While actions were recently taken and projects have been announced in the energy and transport sectors, South Africans should prepare themselves for ‘more of the same’ for longer than hoped for,” Kruger said.


Read: South Africa the biggest loser among major economies

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