SA already in a recession - economist
Fin24 - Jun 10th 2016, 12:15
Cape Town - Dark clouds are gathering for South Africa with fears the ailing economy - which shrunk by 1.2% in 2016's first three months - could fall into recession after hitting a slump in the first quarter of 2016.
Although a technical recession is described as two successive quarters of economic decline, economist Dawie Roodt told Fin24 in his view South Africa is already in a recession.
"As far as I am concerned we have been in a recession for the past year. The reason is our economy has been growing below the growth levels of our population."
Roodt said South Africa is battling with soaring unemployment and low skills.
"We need to grow the economy's primary sectors such as mining and agriculture in order for unskilled people to work, but both these sectors are in recession," he cautioned.
What went wrong
The first quarter gross domestic product (GDP) figures announced by Stats SA on Wednesday came out worse than the markets expected. It showed that the economy contracted by 1.2%, down from marginal growth of 0.4% in Q4 2015.
The drag on the economy came mainly from a sharp drop in the mining and quarrying sector (-18.1 % quarter-on-quarter), hurt by the sluggish global demand and the ongoing slump in global commodity prices.
In addition, sharp declines were also recorded in the drought-damaged agriculture sector (-6.5 %), in electricity, gas and water (-2.8 %) and transport, storage and communications (-2.7 %).
It’s the third time since 2014 that GDP ventured into negative territory. In the first quarter of 2014, GDP fell to -1.6%, but recovered in the following months. In the second quarter of 2015 it again declined to -2%.
Roodt said to get the country back on track; the government needs to address labour legislation, skills development, and infrastructure; however, he added that South Africa is suffering from weak political leadership.
Policy reforms needed
The Institute of Race Relations (IRR) called for policy reforms to be urgently implemented to avert a recession.
IRR CEO Dr Frans Cronje said the mining and agriculture sectors are being undermined by hostile and counter-productive policymaking.
The agriculture sector is still plagued by the lingering impact of the drought on many farming regions, while the mining industry faces uncertainty with a new draft Mining charter on the cards and the draft Minerals and Petroleum Resources Development Amendment (MPRDA) bill still unconcluded.
"Ideology is still too dominant a factor in government policymaking and there is a reluctance to accept that ideology does not work in the real world," he said in a statement.
"Despite statements about the importance of growth there is very little on the policy front to suggest that the Cabinet is serious about securing an economic turnaround”.
Cronje said the IRR would like to see in the next quarter certainty around mining policy and changes to labour legislation. "Specifically the introduction of strike ballots, a reworking of foreign investment protections and a complete redraft of pending expropriation legislation."
Labour needs deregulation
He added that the labour market needs to see a significant degree of deregulation, empowerment policy must be sculpted so as not to deter investment, and property rights need to be secured.
"Without these steps South Africa will not secure the investment to drive higher growth and employment rates," said Cronje. "If these steps are not taken it is difficult to see how South Africa will avoid entering a recession which would almost certainly trigger a sovereign rating downgrade by year-end putting the country into a sharply negative economic spiral”.
Director and Investment Strategist at Brenthurst Wealth Magnus Heystek said the depressed GDP figures are alarming news and time for belt-tightening by government and consumers.
"Dark clouds are gathering for the South African economy", he told Fin24, adding that for investors this is equally bad news.
Heystek said now more than ever, in his view, investors need to diversify and look at investments beyond the local market.
"The outlook for returns from the local market has been dealt another blow with this poor growth number, in the wake of the many profit warnings already issued by companies listed on the JSE."
The World Bank also slashed its 2016 global growth forecast, with South Africa now expected to grow at a 0.6% rate in 2016, 0.8 of a percentage point more slowly than the January estimate.From Fin24
Eskom: The largest threat to the stability of the SA economy
10/09/2019 - 09:45
On Tuesday 23 July, South African Finance Minister Tito Mboweni tabled a bill before the National Assembly which would see national state-owned power utility Eskom benefit from an allocation of R59 billion over the next three years.
Innovative leasing deals boost Kenya's office market
04/09/2019 - 09:25
A creative approach to leasing deals is helping innovative landlords offset the challenges of high vacancies in an overstocked Nairobi office market, according to Broll Property Intel’s latest Kenya Office Market Snapshot H1:2019 report.
No pain, no gain for SA economy
02/09/2019 - 16:22
Despite SA’s fiscal crisis — and the fact that the country has very little to show for the loose fiscal policy run over the past decade — there is a lobby (mainly on the Left) that thinks the best way to resolve SA’s growth and fiscal challenges is to inject further fiscal stimulus into the economy.
Producer inflation slows to lowest level in five months
02/09/2019 - 10:51
Producer inflation moderated to its lowest level in five months in July, due to lower fuel prices.
Tito Mboweni issues surprise growth strategy
28/08/2019 - 09:59
On Tuesday, finance minister Tito Mboweni fired a shot across the bows of the government, publishing an economic strategy for the country on the Treasury website.