Protracted platinum strike pushes SA towards recession

2014-05-27 16:54

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South Africa’s economy shrank in the first quarter of this year, the first quarterly contraction since a recession five years ago, as mining output plummeted due to a protracted strike in the platinum sector.

The economic decline presents a challenge for new Finance Minister Nhlanhla Nene, appointed this week to steer an economy that has struggled to grow by more than 2% annually or generate many new jobs since the 2009 recession.

The weak data also undermines the case for more interest rate hikes this year after the central bank lifted its benchmark rate by 50 basis points in January, although it remains concerned about rising inflation pressures.

Gross domestic product shrank 0.6% quarter on quarter in the first three months of the year after a 3.8% increase in the final quarter of 2013, Statistics South Africa said today.

GDP was dragged into negative territory by a 24.7% plunge in mining production and a 4.4% fall in factory output.

On an unadjusted year-on-year basis, GDP was up 1.6% in the first quarter compared with 2% previously.

Mining and manufacturing account for about a fifth of South Africa’s economy, but have been plagued by strikes in the past few years.

The current mining strike, over wages and now in its fifth month, is the costliest and longest in South Africa’s history.

The first quarter decline in mining output was the steepest since 1967 due to stoppages at the country’s platinum mines, which normally account for 40% of global production of the precious metal.

Economists polled by Reuters had expected GDP in South Africa – recently overtaken by Nigeria as Africa’s biggest economy – to contract by just 0.1% quarter on quarter while expanding 1.9% compared with the same period last year.

“With industrial unrest still continuing, there is little hope for a robust recovery in mining output in the second quarter in 2014,” Standard Chartered analyst Razia Khan said.

“The challenges for the South African economy persist.”

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