South Africa stumbles into a recession

South
Africa fans react after the 2010 World Cup Group A soccer match
between France and South Africa at Free State stadium in
Bloemfontein.
Reuters/Jorge
Silva

• South Africa’s economy entered a recession for the
  first time in nearly a decade. 
• Gross domestic product fell 0.7% in the second quarter,
  dragged down by weak performance in the agricultural
  sector. 
• The South
  African rand plunged more than 2% following the
  report.

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South Africa’s economic growth slowed unexpectedly in the second
quarter, pushing the country into a recession for the first time
since 2009. 

Gross domestic product in Africa’s most developed economy fell by
0.7% from April to June,
the national statistics agency said in a report Tuesday,
compared with expectations for 0.6% growth. That followed a 2.6%
contraction in the previous quarter. 

The contraction was partly driven by weak performance in the
South African agricultural sector, which declined by 11% after a
major drought affected parts of the Western Cape earlier this
year. Meanwhile, the trade and transport sectors also saw
output declines.

Jason Tuvey, a senior emerging markets economist at Capital
Economics, said he expects economic conditions to improve over
the rest of this year. 

“Today’s data will further dent hopes that Cyril Ramaphosa’s
presidency would lead to a marked turnaround in South Africa’s
economic fortunes,” Tuvey said. 

The South
African rand, which has been under pressure throughout the
last several months, extended losses following the report. The
currency fell as much as 2.6% to 15.2268 against the dollar.
Yields on rand-denominated government bonds spiked 22 basis
points to 9.22%, the highest level since Ramaphosa was
elected leader of the ruling African National Congress in
December.

Capital Economics