South African economy contracted in Q1 2016; may fall into recession in 2016

South Africa’s real GDP contracted 0.3 percent in sequential terms in the first quarter of 2016. The analysts who were surveyed before the data was published had projected zero growth.

Furthermore, last year’s data was revised and is showing a less favorable picture. The individual GDP components are directing towards a recession in the country. Private consumption declined 0.4 percent q/q in Q1, whereas gross fixed capital formation deteriorated further. On a sequential basis, gross fixed capital formation dropped 1.5 percent q/q after dropping 0.7 percent in Q4 2015. Moreover, foreign trade declined in the first quarter as well.

The inclination to invest has declined, which is not much surprising given the country’s political situation that is quite troubled. Corruption investigations are highly concentrated againt President Jacob Zuma. But Zuma refuses to budge. The ability of government to take any measures has been limited significantly.

For investors, South Africa is becoming quite a difficult place to invest in. Unless a quick solution comes up for the political unrest, the economy will contract in 2016, said Commerzbank in a research report. Commodity prices’ recent uptrend is not expected to change that. But it does not seem that a solution to the political crisis is imminent.

“We therefore lower our growth forecast for 2016 from 0.9 percent to -0.2 percent. We continue to expect a rise of 1.5 percent for 2017," added Commerzbank.