SA could slip into technical recession in 2015

Sizwe Nxedlana, Chief Economist at FNB.

SA GDP unexpectedly declined by 1.3% quarter-on-quarter (q/q) in 2Q 2015. This is the worst decline in a year and a half and it follows a 1.3% increase in 1Q 2015.

Says FNB Chief Economist Sizwe Nxedlana, “the weakness in 2Q was centred in the primary and secondary sectors. The industries recording declines included: agriculture (-17.4% q/q), mining (-6.8% q/q), manufacturing (-6.3% q/q), utilities (-2.9% q/q) and wholesale and retail trade (-0.4% q/q). Meanwhile, the lone strong performer was finance and business services (+2.7% q/q), which has proven to be a highly resilient industry in recent years.”

The weakness in the agricultural sector 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 and secondary sectors is linked to a combination of power shortages, low commodity prices and weak domestic and international demand.

“The steep decline in quarterly GDP raises the risk that the economy will tip into a technical recession in 3Q 2015 (defined as two consecutive quarters of negative growth),” says Nxedlana.

“This may depend on whether the recent wage disputes in the gold and coal industries result in strikes and lost production. Compared to 2Q 2014, the economy grew by 1.2% which was well below expectations. In 1H 2015, GDP growth has been 1.6% year-on-year (y/y). This suggests that there are downside risks to our already below consensus forecast of 1.7% for full year GDP growth,” adds Nxedlana.