South Africa has officially entered a technical recession, after Stats SA announced on Tuesday that the country's real gross domestic product had decreased by 0.7% in the second quarter of the year.

This follows a GDP contraction of 2.2% in the first quarter. A technical recession is two consecutive quarters of negative growth.

The first quarter's GDP contraction has now also been revised upward to -2.6%. This is SA's first recession since the 2008/2009 global financial crisis.

Shortly after the economic data release at 11:30, the rand piled on losses against the dollar, falling to a daily low of R15.23/$, down 2.4% on the day.

Ahead of the announcement in Pretoria, analysts at FNB had been cautiously optimistic that SA could avoid a recession, but said it would be a 'close call'.



The ABSA Purchasing Manager's index for August, meanwhile, released Monday came in at a 13-month low.

Agriculture takes a hit

The largest negative contributors to GDP growth were the agriculture industry - which decreased by a whopping 29.2%, followed by the transport industry (-4.9%) and trade (-1.9%).

"This [decrease in agriculture] was largely driven by a decline in the production of field crops and horticultural products," said Stats SA in a media statement. "Continued drought conditions in Western Cape and a severe hailstorm in Mpumalanga, resulting in extensive crop damage, also placed additional pressure on production in the second quarter."

The main positive contributors were mining, up 4.9% and the finance, real estate and business services industry, which increased 1.9%.

For the first time since Q1 2016, households also cut consumption expenditure, which decreased by 1.3% for the quarter. The biggest cuts were recorded for spending on transport, food and drinks, according to Stats SA.

Government expenditure, meanwhile, grew by 0.7%. Total investment, also known as gross fixed capital formation, decreased by 0.5%.

Net exports contributed positively to growth in GDP through expenditure. Exports were up 13.7% for the quarter due to increased trade in precious metals, mineral products and vegetable products. Imports increased by 3.1% and were driven by imports of mineral products, prepared foodstuffs, beverages and tobacco and vehicles and transport equipment, according to Stats SA.

In August, President Cyril Ramaphosa punted his initiative to attract investment as a remedy to boost economic growth to members of Parliament. Cabinet is also working on a stimulus package to reignite growth. The SA Reserve Bank has estimated that the GDP growth would average at 1.2% in 2018, which may now need to be revised downwards.



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