This is the largest quarterly fall since the second quarter of 2009. Economists had expected a contraction of 0.5% quarter on quarter. Mining fell 9.9%, manufacturing 6.4%, and construction 1.9%, Statistics SA said on Tuesday.
The recent volatility in global markets has also contributed to deflating the so-called Ramaphoria.
Chances of inflation worsening have increased, meaning the South Africa Reserve Bank is less likely to cut interest rates any time soon. The rand has weakened considerably since reaching R11.51 to the dollar late in February, which was its best level in more than three years. Local bonds have also lost substantial ground.
Still, the prognosis for the year looks broadly positive, with Treasury expecting the economy to grow 1.5% in 2018 from 1.3% in 2017.
“SA’s economy contracted again in first quarter, underlining the scale of the task facing … Ramaphosa. Growth will pick up later this year, but will remain weak by historical standards,” said John Ashbourne, senior emerging-markets economist at Capital Economics.
The banking index dropped 2.71%, with First Rand losing 2.41% to R61.83, Standard Bank 2.32% to R211.60, Barclays Africa 3.54% to R162.47, and Capitec 3.81% to R892.20.
Woolies dropped 3.22% to R56.55, Massmart 3.53% to R 114.80, and TFG 2.83% to R185.01.
Industrial group Bidvest, which is one of the proxies for the South African economy, shed a hefty 3.9% to R201.33. Barloworld dropped 5.1% to R134.20.