Sunday, August 1st, 2021

South Africa Recession, Longest in 28 Years

South Africa recession is the longest in 28 Years says a report by Bloomberg. It says that South Africa’s restrictions to curb the spread of the coronavirus put the economy into its longest recession in 28 years, with gross domestic product contracting more than expected in the second quarter.

GDP shrank an annualized 51% in the period through June from the previous quarter, compared with a revised 1.8% contraction in the first three months, Statistics South Africa said Tuesday in the capital, Pretoria.

That’s the steepest decline since at least 1990 and extended the South Africa recession into a fourth quarter, the longest period of consecutive quarterly contractions since 1992.

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A strict nationwide lockdown that started on March 27 deepened the slump in an economy that’s stuck in its longest downward cycle since at least World War II. Enforced by the police and military, people were allowed to leave their homes only to buy food, collect welfare grants and seek medical care unless they provided essential services. While gradual re-opening of the economy started on May 1, many companies closed down permanently or fired workers during the shutdown.

Still on the South Africa recession: output shrank more than the central bank’s estimate of a 40.1% annualized contraction; increasing the chances of a sixth interest rate cut this year. Governor Lesetja Kganyago said last month that inflation gives the monetary policy committee room to respond if the nature of the shock caused by the pandemic turns out to be worse than forecast.

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“It adds to the case to cut by 25 basis points”, said Nazmeera Moola, head of South African Investments at asset manager Ninety One Ltd. in Cape Town. “We expect 25 either now or the following meeting, but I think this data helps to increase the case for a cut next week.”

The continued contraction of South Africa recession is likely to weigh on revenue collection and the government’s efforts to stabilize debt and narrow the budget deficit. It will also make it more difficult to lower the unemployment rate of 30.1% that is seen as one of the biggest obstacle to reducing poverty in one of the world’s most unequal nations.

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While the Reserve Bank forecasts a rebound with annualized growth of 17.5% in the third quarter, continued power cuts in what’s already a record year of outages and slow reforms could threaten the recovery.

Fuel subsidy is not included in the 2020 budget.

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Here is what Bloomberg’s economist, Boingotlo Gasealahwe has to say on the South Africa recession; “The South African economy was already on the back-foot when the coronavirus struck. The second date GDP data released this morning has confirmed the economy was badly hit by the measure taken to curb the spread of the coronavirus. While some recovery is currently underway, it is being hampered by a number of long-standing structural constraints – most of which have intensified as a result of the pandemic.”

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