Economy expected to improve in second half

Tuesday, May 26, 2009

Pretoria - South Africans can take comfort in the fact that despite the current recession, the economy is forecast to improve in the second half of the year.

Gross Domestic Product (GDP) figures for the first quarter of the year show the economy shrank by an annualised 6.4 percent, Stats SA said on Tuesday.

National Treasury said in a statement that the GDP figures released by Stats SA, confirmed that South Africa, along with much of the global economy, was in a recession.

Director General in the Treasury Lesetja Kganyago told media later in the day that the economy was expected to contract further before growing again in the second half of this year.

This is the second contraction in a row since the last quarter of 2008 that slowed by 1.8 percent.

"For South Africa, this is the first recession since 1992," said Mr Kganyago.

"We expect another quarterly contraction for the second quarter, but this is expected to be smaller. However, the economy is expected to improve in the final two quarters of this year."

He said it was not yet clear which sector would contribute the most to the upturn of the economy.

He said the recovery of the country's economy was connected to what happened in the global markets.

"The underlying strength in the South African economy has meant that this slowdown is less severe than in many countries. In our case we know the impact had been less severe."

Mr Kganyago said that although the current national budget was drawn up with an expected 1.2 percent growth, this was no longer the case.

"What we will continue to do is to monitor the high frequency data that comes out and then take a view on what to do with our economic forecast," he said, adding that the budget policy statement was to be revised.

Economist at the Bureau for Economic Research (BER) Hugo Pienaar told BuaNews that the contraction was a lot worse than expected. He has expected it to be at around -4.1 percent.

"Seven out of ten sectors contracted in the first quarter. We didn't expect the biggest sector which is the financial sector to contract so much," said Mr Pienaar.

He added that he hoped the country had outlived the worst of the recession in the first quarter, though South Africa was likely to see a contraction in the second quarter which will be more moderate.

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