South Africa is
in recession. However, none of the nine provinces are in recession.
of the first quarter of 2017
South Africa has experienced three recessions
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
provinces are at risk of slipping into recession this year?
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
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
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.
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).
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
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.
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