South Africa has a lot of problems

South Africa’s economy is not looking good.

The country’s latest data were worse than economists were expecting, and now analysts are raising questions about South Africa’s long-term outlook.

Arguably, the most worrying data point was January’s Manufacturing PMI, which fell to 43.5. That makes six consecutive readings below 50, which indicates a contraction.

“The dire performance of the manufacturing sector is especially disappointing given the depreciation of the rand, which has boosted external competitiveness,” argues Capital Economics’ Africa economist John Ashbourne.

Moreover, “this soft patch for the manufacturing sector comes at a time when South Africa’s crucial mining sector seems locked in structural decline,” he continues.

“Unlike many African peers, the South African mining industry was struggling before commodity prices fell: gold production has halved since 2005 as a result of rising costs and the depletion of reserves at ageing mines,” he added.

Notably, all of this bad news from the manufacturing and mining sectors have led South Africa to be “unhealthily dependent” on its service sector.

But even that’s not a great gamble for the struggling economy.

“We doubt that highly indebted South African consumers can continue to ramp up spending indefinitely, and have long argued that the economy is effectively living on borrowed time,” he argued.

And if all of that weren’t enough, Ashbourne also notes that there are a number of “potential crises” and structural issues that could be major headwinds:

“The decaying electricity grid could yet collapse, spurring a prolonged power crisis. Labour relations remain fraught; another round of strikes could cripple the mining sector. And it is increasingly likely that South Africa credit rating will be downgraded to junk. Unemployment will probably remain among the highest in the world. … Political protests are already becoming more common, and a sustained period of economic stagnation will raise tensions and cause more South Africans to question the political and economic bargain that underpins the post-Apartheid settlement.”

As for what all of this means growth wise, Ashbourne writes that Capital Economics analysts have downgraded their 2016 forecast for South Africa’s economy to a “sclerotic” 0.5%, below consensus, and 1.3% in 2017.

That would make “South Africa one of the world’s worst-performing major economies. Even if the economy narrowly avoids a recession, per capita incomes will fall as the population grows,” he noted grimly.

“The key risk in South Africa is not an acute crisis, but a period of stagnation that could strain the country’s political and economic institutions to the breaking point.”

In two words: not good.

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