Publish Date: 15 Jun 2017
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South Africa is in recession. However, none of the nine provinces are in recession.

Highlights of the first quarter of 2017

  •  Selected key socio-economic indicators for South Africa, 1Q2017:
    • Unemployment rate: 27.7%
    • Gross Domestic Product: -0.7% QoQ;
    • CPI: 5.3% YoY for April 2017 and
    • PPI CPI: 4.6% YoY for April 2017.
  • During the first quarter of 2017, South Africa’s economy contracted by 0.7% and the number of people unemployed increased by 433 000.
  • The South African economy moved into recession a the reported decrease of 0.7% in GDP during the first quarter of 2017, following a 0.3% contraction in the fourth quarter of 2016.
  • According to Statistics South Africa, a sharp contraction in both secondary and tertiary sectors tipped South African economy into negative territory in the first quarter of 2017. Trade and manufacturing sectors were the major heavyweights that stifled production, with trade falling by 5.9% and manufacturing by 3.7%.
  • Using the widely accepted measure of recession as two or more consecutive quarters of negative growth (real GDP quarter-on-quarter), in this first quarter of 2017, only South Africa is technically in recession but none of the nine provinces are in recession.
  • The provinces at risk of recession contributes 80% to South African economy while provinces not at risk of recession contributes 20% to the country’s GDP.  This 80/20 principle is not healthy for the country's economic prospects.
  • The World Bank, in its Global Economic Prospects report released in June 2017,  has revised down its forecast for South Africa’s GDP growth for 2017 by 0.5 percentage points to 0.6% 
  • The Eastern Cape seasonally adjusted quarterly real GDP was estimated to be R233 173 million in 4Q2016. This estimate declined by R798 million to R232 376 million in the first quarter of 2017. This is due to a sharp contraction experienced in both secondary and tertiary sectors in the EC.
  • Consequently, real GDP in the Eastern Cape contracted by 1.4 % QoQ in 1Q2017 compared to 0.7% contraction in South Africa. On a positive note, real GDP in the province grew by 0.4% YoY.
  • Except for the Free State, Northern Cape, Limpopo and North West, economic growth in all provinces, including South Africa as a whole, declined.
  • During the first quarter of 2017, only the primary sector grew positively. All other sectors, namely: Manufacturing, Construction, Energy (Water & Electricity), Trade (Whole sale and retail trade), Transport and Telecommunication, Finance and Real Estate, and Government Services declined.
  • While other countries in the world continue to recover from the 2008 Recession, South Africa’s economy (including Eastern Cape) remains fragile and very volatility.
  • South African Reserve Bank (SARB) has completely hand over the entire release of GDP to Statistic South Africa. For the first time in history, GDP (on both: Production or supply side and Expenditure or demand side) will be compiled by one institution, i.e. Statistic South Africa.

 

South Africa has experienced three recessions since 1997:

South Africa has experienced three recessions since 1997


Technically, the Eastern Cape economy is not in recession. This is because during the fourth quarter of 2016, real GDP grew by 0.6% and in the first quarter of 2017, it declined by 1.4%. The province will be in recession if real GDP decline during the second quarter of 2017.

 According to Statistics South Africa, and using the widely accepted measure of ‘recession’ as two or more consecutive quarters of negative growth (real GDP quarter-on-quarter), South Africa has experienced eight economic recessions since 1961. The longest recession occurred in 1991–1992, mainly as result of a global economic downturn. In 2008–2009 there was a recession over three quarters when the country experienced the effects of the global financial crisis.  What has caused the current recession?  In the first quarter of 2017, only agriculture and mining grew positively. Both the secondary and tertiary sectors recorded negative growth rates. The trade and manufacturing industries were the major heavyweights that stifled production, with trade falling by 5.9% and manufacturing by 3.7%.  This is, according to Stats SA, what has triggered the current recession.

During the same quarter, there were 443 thousand people added to the number of unemployed in the country and 110 thousand people in the Eastern Cape. The expanded unemployment rate in the country increased from 35.6% in 4Q2016 to 36.4% in 1Q2017. In the Eastern Cape, it grew from 41.3% in 4Q2016 to 43.6% in 1Q2017. The current recession will put more pressure on government, business, labour and broader society to intensify its growth programme and improve confidence needed to set the economy on a higher growth trajectory.


Which provinces are at risk of slipping into recession this year?

Which provinces are at risk of slipping into recession?

Given the GDP contraction in Gauteng, Western Cape, Eastern Cape, Kwazulu-Natal and Mpumalanga during the first quarter of 2017, a negative growth in the second quarter of 2017 will lead these five provinces into a technical recession.  These five provinces that are at risk of entering recession account for 80% of the country’s GDP.

However, in 2Q2017, Free State, Northern Cape, Limpopo and North West have no risk of entering recession because in this quarter, they display a positive growth. These provinces that are not at risk of entering recession contributes 20% of RSA GDP. The figure on the left shows that North West was recession with two consecutive negative growth of (0.8%) in 3Q2016 and (5.9%) in 4Q2016. However, the North West province has recovered from the recession in the first quarter of 2017.

The analysis shows that during this first quarter of 2017, provinces that contribute more to the economy (80%) are at risk of entering recession during the second quarter while provinces with minimal contribution (20%) to the economy are not at risk of recession. This is not healthy for the country’s prospects.


The Eastern Cape Manufacturing sector is still in recession with three consecutive negative growths in 3Q2016, 4Q2016 and 1Q2017. 

Except for agriculture and mining sectors, all other sectors in the Eastern Cape experienced negative growth rates. In 1Q2017, the primary sector (agriculture and mining) contributed 2% to Eastern Cape GDP.  This insignificant contribution by productive sectors pose a serious challenge to growth prospects of the province. The secondary sector and tertiary sector contribute 98% to the provincial economy (See Figure below). There is a great need to diversify the provincial economy, particularly in the productive sectors. 


The Eastern Cape Manufacturing sector is still in recession with three consecutives negative growths in 3Q2016, 4Q2016 and 1Q2017

Given contraction in the secondary and tertiary sectors during the first quarter of 2017; negative growth in the second quarter of 2017 will lead these sectors into a recession. The Table on the left shows that the manufacturing sector is already in recession with three consecutive quarters of negative growth rates.

Trade and manufacturing sectors had the highest decline in the first quarter of 2017. What happen? High inflation rate and high unemployment rate (43.6%) in the province cause people to spend less on good and services. Less consumption by households overturn demand for tradable goods which leads to less demand of manufactured goods. Lack of demand for goods and services by households discourages investors and manufacturers. Since these two sectors contribute one third of the provincial economy, a negative shock in these sectors will have a sizeable impact on the economy.

Productive sectors’ contribution to GVA is very insignificant. Secondary and tertiary sectors contribute 98% to the Eastern Cape economy (EC, 1Q2017).

roductive sectors contributions to GVA is very insignificant

















For the Eastern Cape, contraction in economic output of R798 million was followed by 5 thousand jobs loss. Unemployment increased from 574 thousand people in 4Q2017 to 684 thousand people in 1Q2017. This corresponds to 110 additional people joining the team of unemployed, or 19% increase in the number of people unemployed. With 43.6% unemployment rate in the province (expanded definition), people have less money to spend. During the first quarter of 2017, household consumption expenditure on non-durable and semi-durable goods declined by 1.7% and 1.0% respectively. Only household spending on services increased marginally by 0.4%.  It is this decline in household spending that affect the trade sector (Shopping centres), and indirectly reduce demand for manufactured goods.

Rapid economic growth depends on investment, which in turn is dependent on confidence and positive expectations of the country’s future. The lack of confidence is also reflected in suppressed demand, which in turn results in contractions in economic output. 

Please contact info@ecsecc.org for more information. 


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