Economic Recession and Recovery in South Africa

DEVELOPMENT STUDIES
Development Studies
Name of the Student
Name of the University
Course ID

1
DEVELOPMENT STUDIES
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).

2
DEVELOPMENT STUDIES
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.