Economic Recession and Recovery in South Africa

This essay evaluates the current state of South African economy and attempts to evaluate whether the economy is recovering recession or still facing a recessionary pressure. The discussion includes economic recession in South Africa, current state of the economy, economic recovery of South Africa, and more.

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Development Studies
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Introduction
South Africa is considered as the second largest economy in the African
continent after the economy of Nigeria. The economy is seen as one of most
industrialized nations in Africa. The World Bank considers South Africa as an upper
middle income country. Gross Domestic Product of South Africa reached to a peak
position in 2011 with recorded GDP being $400 billion. Since then however GDP
declined nearly to $295 billion both in 2016 and 2017. South Africa enjoys a
comparative advantage in product related to mining, agriculture and manufacturing
sector (Rogerson 2017). The economy in the third quarter of 2018 entered in an
economic recession for the first time since 2009. The latest economic recession has
been brought by a contraction in transport, agriculture and retail sector. The essay
describes current state of South African economy and attempts to evaluate whether
the economy is recovering recession or still facing a recessionary pressure.
Discussion
Economic Recession in South Africa
Economic recession is one of four phases of business cycle characterized by
a contraction of the economy in the for a declining GDP growth., rising
unemployment and instability in price level (Goodwin et al. 2015). The economy of
South Africa entered in a pronounced recession in the second quarter of 2018.
During this time real Gross Domestic Product of the economy contracted by 0.7
percent. The contraction in real GDP was followed by a recorded contraction of 2.2
percent in the first quarter. The two consecutive quarter of negative growth moved
the economy towards a recession. The contraction of GDP growth in the first quarter
of 2018 recorded an upward revision of -2.6 percent. With the economy experienced
its first ever recession after the global financial crisis during 2008-2009. The biggest
contributors of negative economic growth were agriculture, transport industry and
retail trade. Agriculture sector alone contracted by 29.2 percent followed by a 4.9
percent contraction of transport and 1.9 percent contraction of trade. As against this,
the positive contribution to the economic growth came from mining, real estate,
business service industry and finance. There was a contraction in household
expenditure by 1.3 percent adversely affecting economic growth (Redl 2018).

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Following the economic recession, rand lost its value against US dollar. The
economic contraction during this time contributed to rising unemployment and
volatility in price level.
Current state of the economy of South Africa
The economic state of a nation depends on current state of major economic
indicators. Performance of different indictors helps to understand the phase of
business cycle in which the economy is currently operating (Heijdra 2017). The
economic indicators taken into consideration include GDP growth, unemployment
and inflation.
Figure 1: Economic growth in South Africa
(Source: Tradingeconomics.com 2019)
The figure above indicates the South Africa has experienced the largest
decline in GDP growth in the first quarter of 2018 with the economy recording a
negative growth rate of -2.7 percent. This trend also followed in the second quarter
and growth remained negative. The positive growth rate of 2.6 percent in the third
quarter marked an economy recovery. Growth though declined to 1.4 percent in the
first quarter of 2019 but still remained positive reflecting no fear of recession at
present.

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Figure 2: Trend in unemployment in South Africa
(Source: Tradingeconomics.com 2019)
As suggested from recent unemployment figures, rate of unemployment in
South Africa declined to 27.1 percent in the last quarter of 2018. This is another
indicator of economic expansion. The decline in trend unemployment contribute to
economic expansion by increasing household expenditure. Decrease in
unemployment in the last quarter of 2018 mainly due to a higher job opportunity
created in the festive seasons.
Figure 3: Trend in inflation rate in South Africa
(Source: Tradingeconomics.com 2019)
The targeted inflation rate as set by Reserve Bank of South Africa ranged
from 3 percent to 6 percent (Resbank.co.za 2019). The figure above indicates that
inflation rate in South Africa remained within the targeted limit indicating stability in

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the price level. The modest inflation rate helps to maintain overall stability in the
economy. The recorded inflation in the January 2019 is 4.0 percent which is below
the market expectation. The decline in inflation is largely due to decline in fuel price.
Economic recovery of South Africa
After the technical recession in the third quarter, the economy of South Africa
started to recover since the third quarter. The economic recovery has been
confirmed from an upward revision of GDP growth to 2.6 percent in this quarter. The
recorded figure of economic growth was largely in line with the economists’
expectation. The economists’ projected the economic growth to be lied between 0.8
percent and 2.6 percent. The value of rand increased by 1 percent after the release
of economic growth indicating strength of the economy. The factors contributed to
economic recovery in the third quarter are discussed below.
Expansion on manufacturing industry
GDP growth of South Africa experienced an upward revision mainly due to the
growth of secondary sector. The sector grew by 4.5 percent. The growth of
secondary sector was largely driven by a 7.5 percent growth in manufacturing
(Tradingeconomics.com 2019). The biggest contributors of manufacturing growth
include steel, metals, production of motor vehicle and others.
Recovery of agricultural sector
The agricultural sector has rebounded after two consecutive quarters of
negative growth. Overall, there is a contraction of primary sector by 5.4 percent
mainly because of a large decline in mining. In the third quarter, increase in the
production of field crops, animal products and horticulture contributed to an
improvement of economic growth to 6.5 percent (Venter 2019). A report published by
Bloomberg indicated that confidence of the agricultural industry hit the lowest in nine
years. The confidence index for agribusinesses declined from 48 to 42 primarily
because of concern relating to weather condition and a less transparent policy of
land reform.

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Recovery of transport sector
In the third quarter of last year, the tertiary sector accounted a growth of 2.6
percent. In particular, growth of transport, storage and communication grew by 5.7
percent recovering from -4.9 percent in the previous quarter.
Growth of finance, real estate and business service
Within the tertiary or service sector, an increasing trend in growth has been
observed for finance, business service and real estate. During the recovery quarter
these sub sectors accounted a combine growth of 2.3 percent. Apart from this, within
the trade industry especially retail, wholesale, food and beverages, catering and
accommodation expanded by 3.2 percent.
Expenditure led economic growth
The aggregate expenditure in the economy grew by 2.3 percent after two
consecutive decline of -2.6 percent and -0.7 percent in the first and second quarter
respectively. Two components of aggregate spending namely household spending
and government spending grew by 1.6 percent and 2.2 percent respectively (Aye et
al. 2019). There is however a decline in gross fixed capital formation by 5.1 percent
during the same quarter following a decline in investment in the construction sector,
residential building and transport equipment.
Conclusion
The economy of South Africa despite being one of the largest economy in
Africa experienced the latest recession during the first and second quarter of 2018.
Economic contraction was largely contributed from a contraction of agriculture,
transport and trade sector. With economic recession there is decline in value of rand.
However, with recovery of agriculture, transport and trade sector, improvement in
household expenditure and steady growth in sectors like finance, business service
and real state, the economic recovery began since the third quarter. The economic
recovery of South Africa has been reflected in forms of a positive growth of last two
consecutive quarters, decline in unemployment and a stable price level.

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References
Aye, G.C., Christou, C., Gil‐Alana, L.A. and Gupta, R., 2019. Forecasting the
Probability of Recessions in South Africa: the Role of Decomposed Term Spread
and Economic Policy Uncertainty. Journal of International Development, 31(1),
pp.101-116.
Goodwin, N., Harris, J.M., Nelson, J.A., Roach, B. and Torras, M.,
2015. Macroeconomics in context. Routledge.
Heijdra, B.J., 2017. Foundations of modern macroeconomics. Oxford university
press.
Redl, C., 2018. Macroeconomic uncertainty in south africa. South African Journal of
Economics, 86(3), pp.361-380.
Resbank.co.za 2019. The Inflation Target - South African Reserve Bank. [online]
Resbank.co.za. Available at:
https://www.resbank.co.za/MonetaryPolicy/DecisionMaking/Pages/InflationMeasures
.aspx [Accessed 11 Mar. 2019].
Rogerson, C.M., 2017. Geography and economy in South Africa and its neighbours.
Routledge.
Tradingeconomics.com 2019. South Africa GDP Growth Rate | 2019 | Data | Chart |
Calendar | Forecast. [online] Tradingeconomics.com. Available at:
https://tradingeconomics.com/south-africa/gdp-growth [Accessed 11 Mar. 2019].
Tradingeconomics.com 2019. South Africa Inflation Rate | 2019 | Data | Chart |
Calendar | Forecast. [online] Tradingeconomics.com. Available at:
https://tradingeconomics.com/south-africa/inflation-cpi [Accessed 11 Mar. 2019].
Tradingeconomics.com 2019. South Africa Unemployment Rate | 2019 | Data | Chart
| Calendar | Forecast. [online] Tradingeconomics.com. Available at:
https://tradingeconomics.com/south-africa/unemployment-rate [Accessed 11 Mar.
2019].
Venter, J.C., 2019. A brief history of business cycle measurement in South Africa.
In Business Cycles in BRICS(pp. 185-211). Springer, Cham.

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