SAs shrinking economy to pile pressure on consumers: analysts


File: Some economists say the middle-class will bear the brunt of tax reforms, while average consumers will also take a knock.


JOHANNESBURG – Economists have expressed surprise at the degree to which the economy contracted in the first quarter of 2018.

Growth domestic product (GDP) shrank by 2,2 percent to end March – marking the economy&39;s worst performance in nine years.

It is the largest quarterly fall since the second quarter of 2009.

Analysts expect more pressure on consumers for the rest of the year as the effect of April’s VAT hike and increased fuel costs filter into the market.

READ: SA&39;s GDP falls by 2.2% in first quarter

Before the release of the latest GDP data, economists said they expected a growth rate decrease, given the relatively high growth rate of 3,1 percent in the fourth quarter of 2017.

The mining and manufacturing sectors shrank, and agriculture also took a big knock after last year&39;s record crop.

It would seem that political developments did little to reverse the contraction.

Statistician General Risenga Maluleke said: “The highest decrease was recorded in agriculture, which was at -24.2%. Agriculture comes from a high base.”

READ: World Bank raises SA&39;s 2018 economic growth forecast

Government services grew by 1,8 percent and financial services by 1,1 percent.

Agriculture posted the biggest decline, due to a drop in the production of field crops and horticultural products amid a continued drought in the western parts of the country.

Analysts said the latest statistics don’t bode well for job creation in the industry.

READ: All eyes on SA&39;s GDP

“If you see a decline in production, particularly in some of the labour-intensive crops, then when you look at the jobs numbers in the coming months, you see they reflect similar trends. This year, we are not going to see good numbers in agriculture. Towards the end of the year, we might come to [something] positive,” Economist and Agricultural Business Chamber Agribusiness head Wandile Sihlobo said.

What does count in the country’s favour though is that while Zambia&39;s maize production is set to drop by over 30 percent and Zimbabwe remains a net importer, South Africa produced a record crop last year.

Millions of tonnes are available to be exported to neighbouring countries.