SA economy shrinks: first drop since 2009

The economy shrank by 0.6 percent in the first quarter, dragged down by the protracted platinum strike.

new Mandela money

JOHANNESBURG/PRETORIA - South Africa's economy shrank by 0.6 percent quarter-on-quarter in the first three months of this year, the first contraction to hit the economy since the 2009 recession.

In the previous quarter, covering the last three months of 2013, the economy had expanded 3.8 percent.

On an unadjusted year-on-year basis, however, the economy grew by 1.6 percent in the first quarter compared to 2013, though this was 0.4 slower than in the previous quarter, according to Statistics South Africa.

The worse-than-expected quarterly drop this year comes on the back of a massive decline in output from the platinum mining sector which has been paralysed by a strike which has now entered its fifth month.

Thousands of miners belonging to the Association of Mineworkers and Construction Union (Amcu) have downed tools since January, demanding an entry-level salary of R12,500, with faltering negotiations leaving no end in sight.

Miners belonging to other unions have also been producing less in recent weeks, with violence on the platinum belt forcing people to stay away from work.

The 24.7 percent decline in mining output was the biggest quarterly contraction since 1967.

The platinum strike has halted mines that normally account for 40 percent of global production of the precious metal.

Economists polled by Reuters had expected an overall quarter-on-quarter contraction of 0.1 percent, while forecasting year-on-year growth of 1.9 percent.

The rand fell nearly one percent to a session low of 10.44 against the dollar.

South Africa, as the continent's most advanced economy, has struggled to recover from the recession five years ago, partly due to industrial action in key sectors such as mining and manufacturing.

The current mining strike is the costliest and longest in the country's history.

Last week, the Reserve Bank kept interest rates steady at 5.5 percent even though it is in a tightening cycle, with the aim of boosting economic growth.

The bank slashed its 2014 growth forecast to 2.1 percent from 2.6 percent.