World Economy

South Africa Recession Fears Resurface

South Africa Recession Fears Resurface South Africa Recession Fears Resurface

South Africa’s manufacturing output resumed its decline and mining production contracted as weak global demand pushed the country’s ailing economy closer to a recession.

Manufacturing production shrank 2% in March and mining output plunged by 18%—the most on record—figures from Statistics South Africa showed on Thursday, Reuters reported.

“The economy is very weak, and with these set of figures, we’re looking at the possibility of a contraction in the first quarter,” said Dennis Dykes, the chief economist at Nedbank.

South Africa’s economy grew 1.3% last year and 0.6% in the fourth quarter, and in its February budget, the National Treasury lowered its forecast for 2016 to 0.9% from 1.7%. The International Monetary Fund has cut its outlook for 2016 to 0.6%.

All three major ratings agencies have cited weak growth and policy upheavals as major risks to South Africa’s investment-grade rating.

Last Friday, Moody’s maintained the country’s Baa2 rating, but with a negative outlook. Fitch and Standard & Poor’s rate the country’s debt just one notch above sub-investment grade and are due to revisit the ratings in June.

“You go back to brass tacks and ask if government is sending the right signals when it comes to a stable policy environment. But you look at sectors like mining and agriculture and the policy environment there is terrible,” Dykes said.

  Mining Charter Unclear

Last year, South Africa recorded its lowest annual rainfall since comprehensive records began in 1904, as an El Nino-driven drought ripped through the region, putting millions at risk of food shortages.

The government and mining companies have been deadlocked for years over proposed changes to the Mining Charter that will require the companies to keep black ownership at 26%.

South Africa, one of the world’s biggest metals producers, has been hit by a slide in commodities prices that has come on top of widespread labor unrest among miners.

“We need to be cognizant that our mining sector is under pressure and that it’s a global theme,” said Elna Moolman, an economist at Maquire First Securities. “We need to look for alternatives. And given that we are very strong in the services, this is an area we need to focus on.”

Moolman said an increased focus on tourism, which has already benefited from a weaker currency, and upping the export financial and business services would help lift the economy.

In another report, Moody’s has given the City of Ekurhuleni, East Rand region of Gauteng, in South Africa, the highest investment-grade rating, a development the city has welcomed.

Moody’s has allocated the city a national scale rating of Aaa, a four-notch upgrade from a previous rating. This upgrade affirmed a prudent management of finances, the city said.

High investment-grade ratings mean the city will pay lower interest on its loans compared with its counterparts with lower ratings.