Shocking GDP numbers as Eskom power cuts take massive toll

South Africa’s economy contracted the most in a decade in the first quarter as the nation suffered the deepest power outages since 2008. The rand dropped and banking shares slumped.

The annualised decline in GDP was 3.2% in the first quarter from a 1.4% expansion in the prior three months, Statistics South Africa said Tuesday. That compared to a median estimate for a contraction of 1.6%.

Manufacturing, mining and agriculture had the biggest contractions. Weak manufacturing data in the second three months raises the risk that the economy may slip into the second recession in successive years. That would stymie efforts to bring down the fiscal deficit and stabilise debt.

With inflation largely under control, the bigger than expected contraction will also add to calls for the central bank to ease monetary policy.

Eskom struggled to keep power supplied to the economy in February, resulting in the deepest electricity outages in a decade, knocking business and investor confidence to multi-year lows.

The rand weakened as much as 1.4% against the dollar after the data was released, while the banking index fell 3.7%, the most since December.

Contraction

The agriculture industry contracted the most, declining 13%. Mining fell 11%, while manufacturing decreased 8.8%.

The economy hasn’t grown by more than 2% a year since 2013 and is battling to gain momentum despite political changes in late 2017 and early 2018, as businesses and foreign investors seek real reforms.

The government and central bank see the economy expanding by 1.5% and 1% respectively in this year.  — Reported by Ana Monteiro, Amogelang Mbatha and Tshegofatso Mokgabodi, (c) 2019 Bloomberg LP