South Africa slips into recession, against forecasts

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"We reported a contraction in the first quarter ... and now in the second quarter with a fall of 0.7 percent", Reuters News quoted South Africa's Statistician-General, Risenga Maluleke as saying following the latest economic indices were published.

The result was well below the 0.6% forecast by markets; cue selling of the Rand.

Stats SA data further showed a revised 2,6% contraction in the first quarter.

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This is despite expectations from many economists that SA would narrowly miss a recession.

This is due to a drop in the production of field crops and horticultural products, and the impact of drought. A technical recession is two consecutive quarters of negative growth.

"The only sectors to make any meaningful positive contribution were mining, construction and finance, real-estate and business services, all of which came off a very weak base".

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"The mining and quarrying industry increased by 4.9% and contributed 0,4 of a percentage point to GDP growth".

Massive declines in the agricultural, transport and retail sectors have dragged the South African economy into recession after almost a decade of growth. Ramaphosa's ascent to power since December initially boosted sentiment and the rand following Jacob Zuma's corruption-plagued tenure of nearly nine years, but that optimism has faded as structural reforms aren't implemented fast enough amid global trade wars and as turmoil in other emerging markets sour sentiment. "We'll get stuck in our low-growth term if we can't get out of this". "The ZAR is now under renewed pressure and may find it hard to reverse without an external backstop, i.e. improving risk sentiment", warn TD Securities.

"ZAR weakness will also increase the odds of a SARB hike going forward, as the ZAR debacle becomes worrisome for the stability of the CPI outlook", say analysts at the global investment bank.

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