South Africa’s economy has had a sluggish start to the year, data showed, signaling tough times ahead for a country at risk of losing its investment-grade status because of slow growth.
Manufacturing output in Africa’s most advanced economy unexpectedly contracted by 2.5% year-on-year in January after rising by a revised 0.5% in December, Statistics South Africa said. Economists polled by Reuters had expected factory production to rise marginally by 0.2%.
On a month-on-month basis, manufacturing was down 1.8%, and was also down 1.1% in the three months to January compared with the previous three months, the statistics agency said.
“Weak demand, higher input costs and a death of confidence are all likely to continue to keep the manufacturing sector hovering around recessionary levels in 2016,” BNP Paribas Securities economist Jeffrey Schultz said.
Statistics South Africa said mining output fell by 4.5% year-on-year in January.
Disappointing economic growth has heightened fears South Africa’s credit rating could be cut to sub-investment grade and further unnerve investors concerned about President Jacob Zuma’s handling of the economy.
The treasury has said the economy could grow by 0.9% this year compared with an estimated 1.3% in 2015, which would be the lowest rate of expansion since South Africa emerged from a recession in 2009.
“The mining and manufacturing sectors collectively make up about half of South Africa’s gross domestic product, so this contraction in output is a very worrying sign,” Capital Economics analysts said in a note.
Gold Industry
Just off the highway and behind a yellow auto repair shop, Andile Jeremiah slipped into a hole in the ground, descending into an abandoned 100-year-old mine that had helped make South Africa rich.
For a poor man in a country with a slumping economy, it was time to look for whatever had been left behind.
South Africa was once the world’s biggest gold producer, with more than 75% of all global reserves in 1970. That iconic industry created wealth that attracted immigrants from around the world, paid for the construction of roads and railroads and made South Africa’s economy the largest on the continent. Now, its rubble has become a new kind of symbol—of desperation.
Economic growth has stalled. The rand has fallen by 30% against the dollar in the past two years. China’s once-voracious demand for minerals has crashed. The mines where so many became rich closed down after reserves were depleted even faster than expected. A generation of poor South Africans and migrants now break into them and scavenge illegally to survive.
