South Africa Dodges Recession but Trouble Remains

A recession is typically defined as a decline in GDP in two consecutive quarters. In the first quarter of 2014, South Africa’s economy contracted by 0.6% and only grew by 0.6% in the second quarter – narrowly avoiding a recession. Many worry that South Africa, Africa’s most advanced economy, still faces a significant risk of slipping back into a recession. South Africa’s staggering 25.5% unemployment rate is a major factor that is contributing to this risk and it must be harnessed in order for the country to experience sustained economic growth.

South Africa’s first quarter contraction and weak second quarter growth are being blamed primarily on a five month strike in the country’s platinum industry. The strike caused the nation’s mining industry to contribute significantly less to the economy in the first half of 2014. This is particularly worrisome because Africa’s main exports are commodities like precious stones, ores, oil, and mineral fuels. Trade within the region could be greatly affected by South Africa’s stagnant economy, as Zambia, Zimbabwe, and Mozambique are all top ten export partners of South Africa.

South Africa’s economy has struggled to gain footing since its recession amid the global financial crisis in 2008. Since the recession, South Africa’s expansion rate has been much lower than the average growth rate in Africa, and last quarter economic growth fell far short of consensus forecasts. With shrinking manufacturing and mining industries and an exorbitant unemployment rate, South Africa’s economy is in a vulnerable state. The country’s manufacturing sector has been producing fewer and fewer products, which is a result of increased competition in Asia. South America’s manufacturing companies have been unable to produce goods at as low of costs as Asian Companies and demand is dropping as a result.

To prevent another recession, South Africa needs to stabilize its core manufacturing and mining industries. These industries are the life blood of South Africa's economy and when running smoothly stabilize the country economically, politically, and financially.