South Africa’s economy contracted in the second quarter, ending six consecutive quarters of growth as higher fuel costs linked to the Iran war weighed on economic activity.
According to Reuters, gross domestic product fell 0.2% on a seasonally adjusted quarter-on-quarter basis between April and June, slightly worse than the 0.1% contraction economists had forecast.
Statistics South Africa also revised first-quarter growth to 0.4% from 0.5%, indicating that economic momentum was slightly weaker than previously reported.
The latest figures come as Finance Minister Enoch Godongwana continues to focus on strengthening economic growth through reforms, infrastructure investment and measures aimed at maintaining macroeconomic stability.
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The second-quarter figures are the first GDP data to more fully reflect the impact of the U.S.-Israeli war against Iran on South Africa’s economy.
Although the conflict began in late February, its impact took time to reach the domestic economy. Higher fuel prices later increased costs, creating wider pressure on businesses and consumers.
The contraction follows the government’s earlier projection that South Africa’s economy would grow 1.6%, improving from an estimated 1.4% previously.
In presenting the economic outlook, Godongwana identified stronger economic growth as a key priority, supported by structural reforms, infrastructure investment, macroeconomic stability and stronger state capacity.
The latest GDP figures now create a more difficult environment for that recovery agenda.
On a year-on-year basis, South Africa’s economy grew 0.9% between April and June, below the 1.2% expansion economists polled by Reuters had expected.
Economists generally pay closer attention to the quarter-on-quarter GDP figure when assessing South Africa’s short-term economic performance, making the 0.2% decline an important indication of weaker momentum.
Still, the contraction follows six consecutive quarters of expansion, meaning the latest decline marks a break in an extended period of quarterly growth.
The government’s focus will now remain on strengthening the conditions needed for economic activity to recover, particularly as South Africa manages external pressures created by higher global energy costs.
What This Means For Africa
South Africa’s contraction shows how geopolitical conflicts outside the continent can affect African economies through fuel prices, transport costs and wider pressure on businesses and consumers.
As one of Africa’s largest and most industrialised economies, South Africa also plays an important role in regional trade and investment, making its economic performance significant beyond its borders.
The latest figures will put greater attention on the country’s ability to restore growth while continuing reforms aimed at improving infrastructure, investment and economic confidence.
For Godongwana, the second-quarter decline does not change the government’s stated direction. The bigger test will be whether its growth programme can help the economy return to expansion after the latest external shock.
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Image Credit: Polity
