Africa's largest economy – South Africa
- has declined for the first time in 10 years, fueling fears that South Africa
will not be able to avoid a recession.
Correspondent Scott Bobb in Johannesburg explains what the latest economic
latest statistics issued by the South Africa Bureau of Statistics indicate that
the economy shrank for the first time in 10 years during the fourth quarter of
last year. It shrank by 1.8 percent, which was more than many analysts had felt
it would do. In the third quarter, the economy grew by a mere 0.2 percent. So many felt that the South African economy eventually would show some
decline as a result of the global downturn," says Bobb.
are several reasons for the economic downturn. "Two of the hardest hit sectors
are manufacturing, in particular, automobile manufacturing, and mining, in
particular, diamond and platinum and some of the other precious metals. These
have declined for different reasons – mining because of a drop in demand for
the commodities and motor manufacturing, that is, vehicles, has declined
dramatically because of a trend of rising interest rates on loans… The rise in
interest rates was due to high inflation over the past year or so,' he says.
talk the government may put together some financial packages to help the auto
and banking industries, although South African banks have not been plagued by
the same problems troubling US banks. South African banks did not engage in
speculative lending practices. "Nevertheless, they have been hit in some cases.
Some were exposed to some of the Western banks and others just by the drop in
economic activity," Bobb says.
February 5, Central bank Governor Tito Mboweni had announced a
full percentage point cut in a key interest rate, known as the repo rate, to
10.5 percent. Asked whether another cut could be expected, Bobb says, "Yes, the
bank is due to meet in April again and many analysts are expecting another
full…point cut in the rate. But with this economic data…some believe that the
Central Bank might meet as early as in a week or two and have an emergency
meeting and cut rates again to further stimulate the economy."
have already been layoffs and closings in the auto and diamond mining
industries as a result of the slowdown. Tuesday, Lonmin, the world's third
largest platinum producer, said that up to 5,500 jobs would be lost in its Marikana
and Limpopo operations.
Elections are being held in April and
a new South African president will be chosen. Bobb believes the economy will be
a major campaign issue. "It has been a major issue in the inability of the
government to deliver some of this prosperity that's been seen in South Africa
to the poorest of the poor," he says.