South African economy contracts 0.6% in third quarter
(Adds detail, economist comment)
PRETORIA, Dec 3 (Reuters) - South Africa's economy shrank
for second time in three quarters this year, data showed on
Tuesday, as productive sectors fell across the board and
companies slashed inventories, amplifying the chances of ratings
downgrades to junk.
Africa's most advanced economy has struggled to emerge from
a deep slump in the nearly two years since President Cyril
Ramaphosa took the helm with promises to reform and is now on
the cusp of losing its last investment grade rating from
Moody's, and billions of rands of investment with it.
Gross domestic product contracted 0.6% in the third quarter
against a 3.2% expansion in the second quarter, Statistics South
In the first quarter, GDP contracted by 3.1% following
nationwide electricity blackouts by state power firm Eskom, and
while the cash-strapped utility resumed blackouts in September
third quarter activity was hit hard by lower production in
mining, manufacturing and agriculture that analysts said was
linked to lower investment by firms and smaller exports.
Inventories, a measure of investment by firms, fell 9.5
billion rand in the quarter, with exports subdued at q/q growth
of 3.5%. The stats agency said some companies had indicated
cutting stocks in the previous quarter in anticipation of lower
"If there’s no production in mining and manufacturing, and
those are the type of products we are exporting, then
inventories will fall. And if we’re not producing goods, you
don’t have anything left to export,” said Joe de Beer, senior
economist at Stats SA.
Sharp dips in mining, manufacturing and agriculture were the
largest contributors to the negative growth in the third
quarter, with agriculture affected by a severe drought which has
forced government to ration water supplies nationwide.
Mining production fell 6.1% in the quarter, manufacturing
was down 3.9% while agriculture contracted by 3.6%. The three
taken together represent about a quarter of domestic product and
a large chunk of taxes revenues and employment.
The latest data piles the pressure on Ramaphosa,
particularly from ratings agencies which have flagged weak
growth as a major risk, and investors weary of increasing state
debt as revenues slide.
"Growth in the Moody’s criteria is a highly sensitive
measure. They already expect sub-1% long run average growth and
this will impact the fiscus and imply that our debt and deficit
metrics have worsened,” said economist at Nedbank Reezwana
Moody’s is the last of the top three agencies to rate the
country’s debt at investment level, and it is set to review the
rating in March after downgrading the outlook to negative in
“These numbers certainly do support the notion of a
downgrade by Moody’s in 2020,” Nedbank economist Sumad said.
“In a political environment where it is difficult to cut
government wages you could see treasury forced to raise wealth
and personal taxes, and that’s something it doesn’t want to do.”
(Reporting by Mfuneko Toyana, editing by Ed Osmond, William
First Published: 2019-12-03 11:35:01
Updated 2019-12-03 13:49:48
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