South Africa: Economy entered a technical recession in Q2 - TDS

South Africa's growth disappointed for a second consecutive quarter as the economy entered a technical recession in Q2, according to analysts at TD Securities.

Key Quotes

“Real GDP data slowed down considerably to +0.4% Y/Y (cons: 1.0% prior: 0.8%) in Q2, equivalent to an annualized growth rate of -0.7% Q/Q (cons: +0.6% prior: -2.6%, revised).”

“Headline data has been heavily dragged down by a fall in private consumption (down to -1.4% Q/Q annualized from +1.0 in Q1) and deceleration in public expenditure (down to +0.7% from +1.4%). This latter factor is the likely result of the government trying to reign in the budget deficit. However, GFCF improved in the quarter (up tp -0.5% from -3.4%), inventories dropped, while net exports exhibited a very modest rebound.”

“Overall, the 'Ramaphosa revolution' is still struggling to become visible, but it has always been the case that economic improvements will take much longer to become tangible than the market is ready to wait for.”

“The ZAR is now under renewed pressure and may find it difficult to reverse without an external backstop, i.e. improving risk sentiment. On a slightly more constructive note, market pressure may force the government to swiftly enact economic reforms and rethink plans to go ahead with the land expropriation without compensation plan. ZAR weakness will also increase the odds of a SARB hike going forward, as the ZAR debacle becomes worrisome for the stability of the CPI outlook.”