South Africa hit by recession for the first time in 17 years

AFP - South Africa entered its first recession since apartheid as the global crisis pounded demand for its main exports, leaving growth down 6.4 percent in the first quarter, the government said Tuesday.

The market had expected a drop, but the showing was far worse than most forecasts, adding to pressure on new President Jacob Zuma, who took office just two weeks ago promising to create jobs and fight poverty.

"The world deteriorated beyond expectations ... (As we are) very dependent on foreign trade there was no way we were going to escape from that," said Johan Rossouw, chief economist at Vector Securities and Derivatives.

Seasonally adjusted real GDP for the first quarter of 2009 decreased by an annualised rate of 6.4 percent compared with the fourth quarter of 2008, said the Statistics SA, the government's compiler.

The economy had contracted by 1.8 percent in the last quarter of 2008. The two consecutive quarterly contractions put South Africa in its first recession in 17 years.

The main drags on the economy were manufacturing, down 3.3 percentage points, and mining, down 1.7 percentage points, the agency said.

The unadjusted real GDP for the first quarter was down 1.3 percent compared with the same period last year.

"They are really horrible numbers and do demonstrate that the economy actually weakened a lot more than had been anticipated in the first quarter," Dennis Dykes, chief economist at Nedbank, told 702 Talk Radio.

"Clearly there will be further job losses down the line and that of course in turn then depresses other areas of the economy," he said.

The government warned that South Africa would likely see another contraction in the second quarter before the economy begins to recover in the second half.

"Looking ahead, we expect another quarterly contraction for the second quarter, but this is expected to be smaller," national treasury director general Lesetja Kganyago told reporters.

Monetary policymakers will announce a decision on interest rates on Thursday, following Wednesday's publication of inflation data.

The Reserve Bank this year has started meeting every month, rather than every other, to react more quickly to the worsening economic climate.

Policymakers have slashed the benchmark rate at every meeting since December to the current level of 8.5 percent, and are expected to make a new cut this week, possibly by another full point.

"People had underestimated the extent to which production internationally would decline," Azar Jammine, chief economist at Econometrix brokerage, told AFP.

South Africa's economy depends heavily on commodities exports, especially from its mines, where thousands of jobs have already been lost this year.

The Chamber of Mines on Monday reported a 4.8 percent year-on-year drop in gold production in the three months to March, after output last year hit the lowest level since 1922.

The head of the South African Chamber of Commerce and Industry, Neren Rau, said the GDP report "takes one completely aback when the magnitude of the decline is considered."

"Businesses have been suffering the symptoms of a recession for many months," he told the SAPA news agency.

The report was released as Zuma began three days of meetings with his new cabinet on how to follow through on campaign promises to create jobs and fight poverty in a country where up to 40 percent of the workforce is unemployed.

That will become more difficult with a weaker economy, said Rossouw, who said the forecasts for the gross domestic product this year will likely be revised to a contraction of between 1.0 and 1.5 percent.

"It's easy to budget and make plans in a boom phase. Now it's a bit of a different kettle of fish. It is definitely going to make things tougher," he said.