Trade credit insurer Atradius has published an economic research report on South Africa, following the news that the nation has officially entered a recession.

The paper, entitled ‘South Africa: More vulnerable to changes in market sentiment’, is designed to brief businesses on the background to the current economic crisis facing the country and assessing its potential for recovery.

The report notes that the financial rating downgrades and recent cabinet reshuffle further aggravate the already weak confidence in South Africa and could delay the country’s economic recovery. South Africa’s economic growth in 2016 was only 0.3%, exacerbated by a severe drought and low mineral prices alongside weak domestic demand which was hampered by an unfavourable combination of high unemployment, inflation, household debt and interest rates. In the last quarter of 2016, GDP contracted 0.3% with a further contraction of 0.7% in Q1 2017.

Atradius economists now report that, due to a recovery in agriculture and improved mineral prices, economic growth of 1.3% is expected for this year but alongside the improved forecast weakness in confidence and deteriorated market sentiment could continue to have a negative impact on the economy overall.

The economic report warns that despite the forecast recovery, South Africa is not out of the woods: “For several years now economic performance has been weak in South Africa. External shocks have hit the country, but also structural constraints like infrastructure bottlenecks, labour market rigidities, widespread poverty and inequality are hindering economic growth.”

Alun Moseley of Atradius Risk Services, commented: “The current political and policy volatility has adversely affected market sentiment in South Africa. Ongoing uncertainty is likely to weigh upon the economy’s prospects and all eyes will be closely monitoring potential vulnerabilities to assess its future performance.

“Businesses trading within South Africa need to ensure that they keep a close watch on any political, policy and economic changes which could impact the payment behaviour of their customers – whether through insolvencies, currency fluctuations, political ramifications or economic decline. There are always risks involved in trade, and any economy can cause issues, but the rewards can still be realised as long as the right precautions are put in place. A detailed knowledge and understanding of the wider market as well as individual customers is essential. The South Africa economic research report by Atradius is designed as a free resource for businesses as part of a suite of publications and ongoing advice about the risks and opportunities of international trade.”