South African Economy Probably Fell Into Recession
South Africa’s economy has entered its first recession in 17 years after a slump in export demand forced manufacturers and miners to slash output, figures out tomorrow may show.
Gross domestic product dropped an annualized 3.9 percent in the first quarter, after declining 1.8 percent in the previous three months, according to the median estimate of 22 economists surveyed by Bloomberg. The statistics office will publish the data at 11:30 a.m. in Pretoria.
Anglo Platinum Ltd., Lonmin Plc and other miners are firing thousands of workers, while manufacturers such as ArcelorMittal South Africa Ltd., Africa’s biggest steelmaker, have scaled back output as the worst global recession since World War II curbs demand. That may prompt the Reserve Bank to cut its key interest rate by half a point to 8 percent on May 28, the fifth reduction since December, according to 13 out of 22 economists surveyed by Bloomberg. The rest expect a 1 percentage point rate cut.
“The GDP number is going to be a dismal one,” said Johan Rossouw, chief economist of Vunani Securities in Cape Town. “Manufacturing contracted big time in the first quarter. We are probably going to see negative to neutral numbers for the second and third quarters.”
Manufacturing, which accounts for 16 percent of the economy, plunged 11.7 percent in March from a year ago, the statistics office said on May 12.
Rate Cuts
The central bank, which has lowered its key lending rate by 1 percentage point at each of its past three meetings, may reduce the magnitude of rate cuts as inflation stays above 8 percent. That is higher than the central bank’s 3 percent to 6 percent target freecreditscore.
“As we get to the bottom of the interest rate cycle, the Reserve Bank has to begin fine-tuning,” Rossouw said. “We expect inflation to remain sticky, with the biggest culprit being services inflation. Oil prices have also shot up again.”
The statistics office will probably say on May 27 that consumer prices rose 8.3 percent in April from a year ago, down from 8.5 percent in March, according to the median estimate of 22 economists surveyed by Bloomberg. Producer-price inflation probably slowed to an annual 3.7 percent from 5.3 percent over the same period, according to the survey.
Consumers have cut back on borrowing, easing pressure on inflation. Credit demand from consumers and businesses probably rose 8.4 percent in April from a year ago, little changed from 8.5 percent in March and down from a high of 19.6 percent in same month last year, according to economists surveyed by Bloomberg.
Trade Gap
The South African Revenue Services will publish trade data on May 29 that may show a widening in the deficit to 3.4 billion rand ($408 million) in April from 0.5 billion rand in the previous month, another survey showed.
Last week, the benchmark FTSE/JSE Africa All Share Index climbed 3.3 percent, with Lonmin Plc gaining 12 percent, the biggest increase of the top 40 listed stocks. Anglo American Plc, owner of the world’s biggest platinum company, added 11 percent.