* First quarterly GDP contraction since Q2 2009
* Mining output sees steepest slump in decades
* Weak growth clouds outlook for interest rates
(Adds details, updates market reaction)
By Stella Mapenzauswa
PRETORIA, May 27 South Africa's economy shrank
in the first quarter of this year, the first quarterly
contraction since a recession five years ago, as mining output
plummeted due to a protracted strike in the platinum sector.
The economic decline presents a challenge for new Finance
Minister Nhlanhla Nene, appointed this week to steer an economy
that has struggled to grow by more than 2 percent annually or
generate many new jobs since the 2009 recession.
The weak data also undermines the case for more interest
rate hikes this year after the central bank lifted its benchmark
rate by 50 basis points in January, although it remains
concerned about rising inflation pressures.
Gross domestic product shrank 0.6 percent quarter-on-quarter
in the first three months of the year after a 3.8 percent
increase in the final quarter of 2013, Statistics South Africa
said on Tuesday.
GDP was dragged into negative territory by a 24.7 percent
plunge in mining production and a 4.4 percent fall in factory
On an unadjusted year-on-year basis, GDP was up 1.6 percent
in the first quarter compared with 2 percent previously.
Mining and manufacturing account for about a fifth of
Africa's most advanced economy, but have been plagued by strikes
in the last few years, reflecting rigid labour laws that critics
say are a deterrent to investment.
The current mining strike, over wages and now in its fifth
month, is the costliest and longest in South Africa's history.
The first quarter decline in mining output was the steepest
since 1967 due to stoppages at the country's platinum mines,
which normally account for 40 percent of global production of
the precious metal.
Economists polled by Reuters had expected GDP in South
Africa - recently overtaken by Nigeria as Africa's biggest
economy - to contract by just 0.1 percent quarter-on-quarter
while expanding 1.9 percent compared with the same period last
"With industrial unrest still continuing, there is little
hope for a robust recovery in mining output in Q2 2014,"
Standard Chartered analyst Razia Khan said.
"The challenges for the South African economy persist."
The rand fell to a session low of 10.4570 against the dollar
after the data, down about 1 percent on the day, and was still
on the back foot at 10.4300 by 1256 GMT.
Sustained rand weakness could force the Reserve Bank's hand
and spur another interest rate rise to rein in inflation, with
CPI seen climbing higher after breaching the top end of a 3-6
percent target band in April.
The South African Reserve Bank (SARB) kept interest rates
steady at 5.5 percent last week to give the economy breathing
space, but indicated that it was still firmly in a tightening
"The SARB will have no easy decisions when deciding on the
speed and timing of policy rate normalisation given an
increasingly uncomfortable inflation environment," Jeffrey
Schultz, economist at BNP Paribas Cadiz Securities, said.
"We continue to factor in between 50-75 bps in rate hikes in
the second half, but acknowledge that this could be even
shallower should real economy indicators continue to
(Additional reporting by Xola Potelwa; Editing by Susan Fenton)