/ 15 March 2009

R is for recession (& recovery)

When third-quarter gross domestic product figures for 2008 are revised later this year, it is likely that they will be adjusted downwards from the reported 0.2% to show negative growth.

This, coupled with fourth-­quarter GDP, which came in at -1.8%, will show that the economy is in recession, defined as two consecutive quarters of negative growth.

Mike Schussler of economists.co.za says there are signs that the domestic economy is shrinking. These include declining car sales for 23 months; the latest cement sales, which are down 18% year on year; falling electricity sales; 11% fewer ­passengers arriving at OR Tambo airport; and a 27% reduction in building plans passed.

Schussler says the latest figures from the National Credit Regulator show that 43 000 households are four months behind with their mortgage payments while 15 000 are three months behind.

He says the Reserve Bank’s leading indicator of economic activity was “never this negative” and predicts that the South African economy will shrink this year by 0.5%.

The latest RMB/BER figures, released this week, show that business confidence is at its lowest level in 10 years, implying “that only a quarter of respondents rate prevailing business conditions as satisfactory”.

RMB/BER says the decline foreshadows more grim results. “Economic growth is likely to contract further during this quarter and will be dismal for the year as a whole [if not slightly negative]. “It could take up to 12 months before easier monetary policy starts to markedly buoy fixed investment and interest rate-sensitive sectors [such as durable goods and building].”

But the news is not all bad, at least on a relative basis. RMB/BER says business confidence has not declined to the same low level as in other countries and “is still well above the previous South African lows of 1978, 1986, 1993 and 1999”.

Schussler says recessions are part of the normal business cycle. He says while these are difficult times, the South African economy may well already be halfway through the current recession. “The World Cup will be a factor in our favour in helping us, as will government spending programmes.”

Schussler says the South African economy may bounce back sooner and stronger than most people think.

Internationally things are dire with the International Monetary Fund predicting this week that world growth will be negative for the first time since World War II.

All major institutions such as the International Labour Organisation and the Organisation for Economic Cooperation and Development are saying the same thing, says Schussler, “talking the economy down”.

An international survey of hiring intentions released in Johannesburg this week shows that employers in 13 of 33 countries expect some positive hiring activity in the coming quarter. South Africa is one of these 13 countries.

“Although the net employment outlook for South Africa has improved by one percentage point to +14%, according to the latest data, it still represents among the weakest hiring intentions by employers since the survey began in South Africa in the fourth quarter of 2006, say the authors of the Manpower Employment Outlook survey.

Schussler says South Africa will not escape the effects of the global recession, but we may emerge quicker than others.

There is, nonetheless, he says, room for greater action in lowering interest rates and extending both the period and amount that unemployed people can claim in benefits.