(Bloomberg) — South Africa’s economy is likely to remain weak in the second quarter after contracting unexpectedly in the previous three months as election worries weigh on demand.
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Gross domestic product fell 0.1% in the three months to March, compared with a revised 0.3% increase in the previous quarter, Statistics South Africa said in a report released in the capital, Pretoria, on Tuesday. Only two of 11 economists in a Bloomberg survey expected contraction.
The rand traded 0.9% weaker at 18.6883 per US dollar as of 1pm in Johannesburg.
The decline was largely due to contractions in the mining, manufacturing and construction sectors, which account for more than a fifth of GDP, as weak demand and increased rotating power outages took a toll.
The mining and quarrying sector’s contribution to GDP fell by 25 billion rand ($1.3 billion) to 100 billion rand and that of manufacturing by 26 billion rand to 217 billion rand in the quarter, statistician general Risenga Maluleke said.
While the second quarter could see some improvement due to reduced congestion at South African ports, improved electricity capacity and rising global commodity prices, “a lot depends on politics and what kind of alliances we see,” Annabel Bishop said. said the chief economist at Investec Bank Ltd.
Early economic indicators show that election uncertainty has dampened demand in sectors from manufacturing to retail.
Results announced on Sunday showed the African National Congress lost its parliamentary majority in the May 29 election for the first time since taking power in 1994.
The ANC is now in talks with opposition parties to form a coalition government, stoking uncertainty as business and investors wait to see who it will strike a deal with.
Allies of President Cyril Ramaphosa want the ANC to merge with the centrist Democratic Alliance, while his opponents favor a partnership with the left-wing Economic Freedom Fighters or the newly formed uMkhonto weSizwe Party, led by former president Jacob Zuma.
According to Bloomberg Economics, an ANC-DA tie-up would see increased investment, supporting faster growth and job creation. One with MKP or EFF will initially hurt investor sentiment as they wait for political clarity. Adopting a looser fiscal policy under an ANC-EFF-MKP administration would raise borrowing costs, slow economic growth and add to the deficit and debt burden, Bloomberg Economics said.
Household spending, which accounts for about two-thirds of GDP, fell 0.3% in the first quarter and continues to face pressure from persistently high interest rates.
(Updates with more detail throughout. An earlier version corrected the household spending figure in the last paragraph)
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