By Chanel Pringle and Terence Creamer

It came as no surprise that South Africa’s gross domestic product (GDP) had contracted again in the first quarter of 2009, confirming that South Africa was indeed in a technical recession, but the magnitude of the contraction was surprising for some.

Statistics South Africa (Stats SA) on Tuesday reported that the seasonally adjusted real GDP at market prices had declined by 6,4%, compared with that of the fourth quarter of 2008.

South Africa’s GDP had contracted by 1,8% in the fourth quarter of last year, with Tuesday’s figures confirming that South Africa had entered its first recession in 17 years.

Fanie Joubert, an economist at the Efficient Group, told Engineering News Online that the contraction in GDP growth for the first quarter was “much worse than expected” and almost double the 3,5% contraction that the market had expected.

South African Chamber of Commerce and Industry (Sacci) CEO Neren Rau agreed that the GDP figure “takes one completely aback when the magnitude of the decline is considered”.

“The decline firmly confirms what South African business people and consumers already know: South Africa is experiencing a recession.  Businesses have been suffering the symptoms of a recession for many months,” he added.

National Treasury DG Lesetja Kganyago said that the recession was less severe than what would have been the case had it not been for South Africa’s policy response.

South Africa’s fiscal strength would enable the country to respond to the crisis, Kganyago said at a media briefing, which new Finance Minister Pravin Gordhan could not attend because of Cabinet Lekgotla.

An International Monetary Fund study of G20 countries had found that South Africa’s so-called discretionary stimulus amounted to 1,8% of GDP and once spending of State-owned enterprises was included, that figure rose to 4,5%, he stated.

Kganyago noted that the monetary authorities had already responded aggressively to the slowdown, having announced 350 basis points cuts in interest rates since December. However, he would not be drawn on whether he thought Reserve Bank governor Tito Mboweni, and the Monetary Policy Committee, which meets this week, should cut rates by more than the 1% being expected in the market.

In February, the National Treasury forecast economic growth of 1,2%, which would now be revised in the mini-Budget.

Meanwhile, Rau commented that the GDP data issues a “loud call” for a rapid and comprehensive response to the economic recession by the new government.

“Equally loud is the call for government and labour to be sensitive to the economic reality that underpins the GDP data and to exercise restraint in making further demands on business in this vulnerable time. If these calls are not heeded, South Africa will find itself challenged not only in its ability to abate the economic decline but also in its ability to consolidate and gather momentum for an economic recovery,” he stated.

The Congress of South African Trade Unions (Cosatu) added that this was a “national crisis”, which required an immediate response from government, labour and business to ensure that jobs and livelihoods were maintained.

The union said that the country had to ensure the rapid implementation of all measures contained in the framework agreement adopted by the Presidential Joint Economic Working Group in 2008.

Further, Cosatu believed emergency measures to protect vulnerable industries had to be implemented and that the new government had to make a shift towards more “expansionary economic policies” that would include an “radically expanded” public works programme to provide jobs for the growing number of unemployed people.

Business Unity South Africa (Busa) agreed that the steps outlined in the Presidential framework response, as well as lower interest rates, were needed to sustain business confidence and keep job losses to a minimum.

It also urged "key stakeholders" in the economy to help lay the foundations for renewed growth from 2010 onwards and not to do anything that would delay South Africa's economic recovery.

"The 2010 FIFA World Cup will also be of considerable psychological and economic support in helping the South African economy back onto a higher growth path in the years ahead. The priority now is to ensure that the economy is successfully positioned to take advantage of the business cycle when it turns and to attract the investment it needs for growth and developmen," Busa noted.

DAMPENED CONDITIONS

Meanwhile, Joubert said that the GDP figure confirmed the dampened conditions as seen from the Purchasing Managers Index and other indices, which indicated that business and consumer confidence remains under strain.

The “very sharp” contractions in the mining and quarrying subsector, as well as the manufacturing subsector, clearly showed that these sectors were under strain, he noted.

The seasonally adjusted real value added by the mining and quarrying industry declined at an annualised rate of 32,8% in the first quarter, compared with the fourth quarter of 2008, Stats SA reported.

The unadjusted real value by the mining and quarrying industry in the first quarter was down 9,3% compared with the first quarter of 2008.

Further, Stats SA said that the seasonally adjusted real value added by the manufacturing industry had declined by 22,1%, compared with the fourth quarter of 2008, while the unadjusted year-on-year real value declined by 10,8%.

The rand had already weakened slightly, said Joubert, noting that this was mainly as a result of the GDP figure being worse than expected.

Analysts said it would be difficult to forecast what South Africa’s GDP growth would be going ahead, with Joubert noting that it was uncertain how long South Africa would remain in a recession.

This depended largely on how quickly the international economy recovered, as many of South Africa’s subsectors were dependent on international demand factors.

The National Treasury was, however, of the opinion that there were “tentative signs” of improvement in the world economy, which it said could suggest that the global contraction might have bottomed-out.

“Commodity prices, capital inflows, and indicators of purchasing manager’s outlook in some key global economies have stabilised and even strengthened,” the National Treasury said in a statement.

It expected GDP growth in the second quarter to contract again, although this would be of a smaller magnitude.

However, Investec economist Annabel Bishop commented that the country's recession had only partly been driven by the fall in demand for exports and that the South African Reserve Bank's previous tightening cycle, which had seen interest rates being increased by 5,5%, had also contributed to the recession.

"The recent tightening of rules governing consumer credit will delay the stimulus from this year’s monetary easing; we do not expect positive growth before 2010," she added.