South Africa edges toward recession with drop in mining

AP News
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Posted: Jun 08, 2016 12:18 PM

JOHANNESBURG (AP) — South Africa edged closer to a recession Wednesday on news that the economy had shrunk by 1.2 percent in the first three months of 2016 amid a fall in production at the country's mines.

Mining and quarrying, which contributes nearly 8 percent to gross domestic product, fell 18.1 percent in the first quarter as worldwide demand for commodities remained low, according to figures released by South Africa's statistics agency.

Growth was also hit by a protracted drought, with agriculture, which makes up 2.2 percent of GDP, shrinking for the fifth consecutive quarter. Agricultural production has fallen by 14 percent since the fourth quarter of 2014.

"The slowdown in mining and agriculture has had a knock-on effect on industries further along the production chain," Statistics South Africa said. "Lower demand for energy, especially from mining, saw the electricity industry contract by 2.8 percent."

The economics figures were released as credit ratings agency Fitch released its latest assessment of South Africa's economy by leaving the country's rating unchanged at "BBB-", one level above junk status.

"The 'BBB-' rating reflects low trend GDP growth, significant fiscal and external deficits, and high debt levels, which are balanced by strong policy institutions, deep local capital markets and a favorable government debt structure," Fitch said in its report.

South Africa has recently been kept above junk status by the agencies Moody's and Standard & Poor's. However, with unemployment at around 27 percent and 5.7 million people jobless, food prices increasing after the drought and reports of tension between President Jacob Zuma and Finance Minister Pravin Gordhan, South Africa will remain under scrutiny by the ratings agencies.