Explainer: What does the recession mean for South Africa?

Explainer: What does the recession mean for South Africa?

Explainer: What does the recession mean for South Africa?

"We reported a contraction in the first quarter even with revisions and now in the second quarter with a fall of 0.7%‚ we are in recession‚" statistician-general Risenga Maluleke said in Pretoria on Tuesday.

Most economists predicted that South Africa would miss falling into a technical recession.

A recession is defined as two consecutive quarters of declining gross domestic product (GDP) and points to a prolonged slowdown in economic activity‚ which stunts job creation and damps investment.

In news that analysts hoped to avoid on Tuesday, South Africa officially entered a technical recession.

"We are in recession".

"The largest negative contributor to growth in GDP in the second quarter was the agriculture, forestry and fishing industry, which decreased by 29.2% and contributed -0, 8 of a percentage point to GDP growth", the report read.

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"Additionally, Treasury will need to find ways to fund items not budgeted for in February, such as above-inflation public sector wage increases, National Health Insurance and president Ramaphosa's economic stimulation package". Weak growth makes it more hard to raise interest rates, leaving the rand even more vulnerable at a time when developing nations are tightening policy. At the same time, mining output grew by 4.9 percent and finance by 1.9 percent.

Unemployment is a hot-button issue ahead of national elections in 2019, and the African National Congress (ANC) has made repeated pledges that things will improve.

"The South African Reserve Bank faces a major dilemma of whether it should raise rates due to rising inflationary pressure from a weaker currency or refrain from doing so due to very weak economic activity", said Piotr Matys, a London-based emerging-market strategist Rabobank.

Head of research at ETM Analytics, George Glynos, said the recession was a function of years of maladministration. "The optics of South Africa are poor".

This is coming barely six months since the current president, Cyril Ramaphosa, took over power.

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