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Eastern Cape Socio-Economic Consultative Council

Are we heading for recession? Highlights of the Eastern Cape Economy in the first quarter of 2016

Published: June 17, 2016

Highlights of the first quarter of 2016

The question on economic analysis lips are "Is the country at risk of slipping into recession?”. Here we provide some highlights of economic growth in the first quarter of 2016. 
  1. The Eastern Cape economy grew by 0.1% quarter on quarter but lost 44 000 jobs
  2. Apart from the Western and Eastern Cape, economic growth declined in all provinces 
  3. Free State is still locked in recession, with four consecutive periods of negative growth
  4. During the first quarter of 2016, two sectors in the Eastern Cape went into recession: Agriculture & Transport
  5. 'Taxes less subsidies on products’ declined in two consecutive quarters
  6. The situation in the country and the Eastern Cape remains fragile with prolonged levels of volatility

South Africa’s economy is back to negative territory

The two decades between 1996 and 2016 can be divided into two periods. The first period (1996 – 2007) depicts a prosperous economy. The peak was in 2Q2005, when the Eastern Cape economy grew by a record 7.1%. The second period (2008 – 2016) shows an economy growing at a declining rate, very fragile with prolonged periods of volatility.
Figure 1: South Africa’s economy remains fragile with prolonged levels of volatility
South Africa’s economy remains fragile with prolonged levels of volatility















Is the country at risk of slipping into recession?

According to the World Bank, the South African economy is at risk of slipping into recession this year. During the first quarter of 2016, South Africa’s economy declined by 1.2%. According to Statistics South Africa, a sharp contraction in mining tipped the South African economy into negative territory.  Had the mining sector been omitted from the calculations, the growth rate would have looked marginally better at 0.5%. Economists are predicting better performance during the second quarter of 2016. 
In 1Q2016 Provinces that heavily rely on mining performed poorly.  For example, in North West, Northern Cape, Limpopo, and Mpumalanga, where the mining sector contributes more than 25% to the GVA, the highest negative growth rates were seen. In contrast, in the Eastern Cape and Western Cape where the mining sector accounts for less than 0.5%, the economy grew marginally at 0.1% and 0.2% respectively.

Figure 2: Except for Western Cape and Eastern Cape, economic growth in all provinces declined during 1Q2016
Except for Western Cape and Eastern Cape, economic growth in all provinces declined during 1Q2016























The province of Free State is still locked in recession. Technically, recession occurs when the economy of a region declines for two consecutive quarters. Free State has contracted for four consecutive quarters: -3.1% in 2Q2015, -1.2% in 3Q2015, -0.1% in 3Q2015 and -3.1 in 1Q2016.
Given the GDP contraction during the first quarter of 2016, a negative growth in the second quarter of 2016 will lead the country into a technical recession. 

However, economists are predicting a positive growth during the second quarter of 2016. 

Sector performance in the Eastern Cape Economy

Low economic activity in the Agriculture, Mining, Utility (Water & Electricity), and Transport sectors contributed to the minimal performance of the province. 

Between the first quarter of 2015 and the first quarter of 2016, five sectors went into recession: agriculture had five consecutive quarters in the red and transport had four consecutive quarters in the red. These two sectors (Agriculture and Transport) experienced prolonged negative growth rates, and in this first quarter of 2016, they are still locked into recession. Mining and Utility (Water & Electricity) were in recession during the third quarter of 2015.  Manufacturing went into recession in the second quarter of 2015 (see Table 1). 

Table 1: During the first quarter of 2016, the Eastern Cape economy had three sectors in recession: Agriculture, Transport and Taxes & Subsidies 
During the first quarter of 2016, the Eastern Cape economy had three sectors in recession: Agriculture, Transport and Taxes & Subsidies
Figure 3 shows that three sectors: Government, Finance and Trade account for 70% of Eastern Cape GVA. Productive sectors’ contributions to GVA are very small. The figure shows sector contribution to GDP-R (in green) and sector annualised growth rate for 2014. Mining declined by 20% and is hence excluded from the figure. 

Figure 3: Three sectors: Government, Finance and Trade account for 70% of Eastern Cape GVA. 
Three sectors: Government, Finance and Trade account for 70% of Eastern Cape GVA.

A note on GDP data

South African Reserve Bank (SARB) has completely handed over the entire release of GDP to Statistic South Africa. For the first time in history, GDP Production or supply side and Expenditure or demand side approaches will be compiled by one institution, i.e. Statistic South Africa.


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