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South Africa – The Economy Grew By 0.6% In April-June



South Africa has avoided falling into recession after 2nd quarter GDP figures were released. The economy grew by 0.6% in the April-June period.

The economy had contracted by 0.6% in the first quarter. A strike in the country was blamed for the weak performance in the first three months. South Africa was last in recession in 2008 amid the global financial crisis.

The country experienced a significant recovery until 2011, but there are fears that this will diminish again. Africa’s advanced economy grew by 1% over the same period last year, compared with annual growth of 1.6% in the previous quarter. South Africa’s agriculture sector grew 4.9% in the second quarter. The mining sector contracted 9.4% from the previous quarter, while the manufacturing sector contracted 2.1%.

South Africa narrowly avoided a recession. Now the focus should be back on growth. The country has a high unemployment rate and more than 8 million people are without a job. To create jobs for a tenth of these citizens, South Africa would have to grow by at least 6% a year, experts say.

But even in the good years before the 2008 crisis, South Africa struggled to reach those numbers. Politicians, unions, academics and voters have wondered how this advanced and industrialized economy in Africa could fall so far behind. The answer lies somewhere in the archaic structure of the economy.

Mining is often referred to as the backbone of the economy, but the sector accounts for less than 10% of total economic activity. Another major problem area is manufacturing. South Africa’s factories are not producing as much as before, mainly because of competition from Asia, which is why production costs are rising. Prices for fuel and electricity have become higher and the weaker South African currency has not contributed positively either.

In summary, the latest GDP figures prove that South Africa is not in a recession, but it is also clear – the weak economy is not yet secured again. Shilan Shah of Capital Economics said, “Looking ahead, there are few reasons to expect a strong turnaround in the coming quarters.”

Many analysts contend that South Africa will also be the victim of a growing credit bubble. Earlier this month, African Bank was bailed out by the country’s central bank and South Africa’s four largest banks were downgraded by ratings agency Moodys.

Evidence suggests that many South Africans are using 70% of their income to service their debts. South Africa has euine high unemployment – around 25% or 8.3 million people. “You can’t create jobs for an economy that is simply not growing,” said South African economist Mike Schussler.

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