Fears that slowing demand for commodities by China could push a labour dispute in South Africa, which faces an economic recession said to be the first in more than a year. Reuters reported that South Africa’s gross domestic product shrank by 1.3 percent in the second quarter of 2015, after growing 1.3 percent in the first three months of the year. The situation it was said will prevent the central bank from raising rates further to protect a weak currency and target inflation, while also torpedoing government efforts to keep deficits in check and protect its credit ratings.
“There is a real risk that South Africa experiences an outright economic recession over the coming quarters,” said Kevin Lings, chief economist at Stanlib, blaming labour disruptions in mining and manufacturing for slowing growth.
Manufacturing output, which accounts for about 13 percent of GDP, tumbled 6.3 percent during the quarter, while mining was down 6.8 percent. Analysts told Reuters there may be a struggle to balance flagging growth, while keeping a cap on spending when revenues are increasingly hard to come by. The Treasury forecast a budget shortfall of 4.1 percent of GDP for 2014/15 and the trade deficit is likely to widen as the China’s economy brakes.
The rand has already fallen nearly 15 percent against the dollar this year, undermined by South Africa’s current account deficit and sluggish growth.
Government spending accounts for over 15 percent of GDP and has been the main instrument used by the ruling African National Congress (ANC) to lift millions out of poverty and try to reduce an unemployment rate of 25 percent.