With the release of the first-quarter 2017 economic growth data, the South African economy entered a technical recession, i.e. two consecutive quarters of a contraction in real gross domestic product (GDP).
This was the result of the economy contracting by 0,3% in the fourth quarter of 2016 and a further 0,7% in the first quarter of this year. Contractions in prominent sectors such as wholesale and retail trade and manufacturing, as well as financial and business services, were the main contributors to the poor economic performance in the first quarter.
The declines in the trade and manufacturing sectors were in line with trends in household consumption expenditure, which dropped by 2,3% in the first quarter, as well as a continued low level of consumer confidence in the first two quarters of the year.
Significant rand exchange rate and other financial market volatility occurred in the first half of the year against the background of political developments and policy uncertainty. These factors and perceived increased institutional and economic risks prompted two country credit rating agencies, namely Standard & Poor’s (S&P) Global Ratings and Fitch Ratings, to downgrade the country to below-investment, or so-called “junk status” in the first week of April. Moody’s Investor Service followed in early June by lowering their country credit rating to one notch above junk status.
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