Advertise with fastmoving.co.za
 
 

South Africa is in the longest downward business cycle since 1945.
South Africa is in the longest downward business cycle since 1945.

SA in longest downward business cycle since 1945 - report

ECONOMIC NEWS

By Carin Smith - Oct 9th 2018, 09:03

South Africa is in the longest downward business cycle since 1945, according to a report by the Centre for Risk Analysis (CRA) at the Institute of Race Relations (IRR). 

"This is extraordinary since other emerging markets are driving the global economy," IRR CEO Dr Frans Cronjé said in the report.

The CRA looked at data provided by the SA Reserve Bank (SARB) on the country's business cycle phases dating back to the end of the Second World War in 1945.

The SARB data - measured in months - indicates that SA has been in a downward phase since December 2013.

Ian Cruickshanks, chief economist of the IRR, told Fin24 that the latest downward cycle was still ongoing, with the "end" still undetermined and, therefore, not yet part of the SARB data.

However, to be able to reflect a more complete picture of what is currently happening to the SA business cycle, Cruickshanks explained that the CRA "counted" the number of months since December 2013 to date - 58 months in total.

Downward cycle still ongoing

"We call it an estimate as we cannot say how long the duration of the downward business cycle will still continue as it is still in progress,"

"What we wanted to be able to establish the length of this downward business cycle phase to compare it to previous downward phases."

According to the CRA report, the SARB data defines growth cycles as representing "fluctuations around the long-term growth trend of aggregate economic activity".

"The SARB determines upper (peaks) and lower (troughs) turning points in the business cycle in terms of the growth cycle definition of business cycles and not the classical definition," explained Cruickshanks.

Classical business cycles refer to periods of absolute increase in aggregate economic activity, followed by periods of absolute decrease (recessions).

SARB employs several statistical tools to establish whether a reference turning point in the SA business cycle has occurred and monitors these continuously.

Cronjé pointed out that, as the most recent quarterly data has shown, there is relatively little life across any of the ten major sectors of the economy tracked by the CRA report.

Stimulus package

He said the IRR was “alarmed” that the recent stimulus package announced by President Cyril Ramaphosa "fell short" - in the view of the IRR - of what will be necessary to reignite the SA economy.

"The crisis SA faces is not one of inadequate government spending or insufficient stimulus, but rather one of an economy battered by a decade of hostile policy," said Cronjé.

In his view, the best "and only" real "stimulus" package open to the SA government is, therefore, one of policy reform.

Economist Mike Schüssler told Fin24 that he agreed with the CRA report about SA likely being in the longest downward business cycle in 80 years - if not even longer, in his view.

He too pointed out that the business cycle was more than just measuring gross domestic product (GDP). For the business cycle, one looks at GDP in relation to leading, current and lagging indicators.

"It looks at a host of things, and basically means SA is growing below potential and that it is not something we can easily fix," said Schüssler.

"When you are down this long, it indicates a structural problem, which cannot just be fixed with interest rates or government spending."

For him, the question now becomes how long this downward cycle will still last.

"It is quite frightening because the rest of the world is showing an upward trend, while we are not," said Schüssler.

"We cannot afford this. In downward cycles, not enough jobs are created no matter what government does."

He pointed out, though, that one must keep in mind that a downward phase of the business cycle does not mean the economy is in a recession. It means it is performing below its normal growth potential.


Fin 24 

Read more about: sarb | sa economy | markets | business

Related News

Technology is fundamentally altering the relationship between brands and consumers
15/07/2019 - 16:44
Both businesses and societies that have accelerated their digital transformation efforts have been rewarded with faster growth. In fact, digital transformation has the potential to unlock the value of about R5-trillion across multiple industries in the next decade, potentially moving the needle of economic growth in SA. So said Wayne Hull, MD of Accenture Digital, at the annual IAB Summit earlier this year.

Woolies, Anglo, Sappi stock in demand
15/07/2019 - 16:26
Woolworths Holdings' (Woolies') share price gained a solid 12.8 percent last week after it announced a turnaround at its fashion, beauty and home business this year. The group, one of many local retailers to struggle in Australia and which also trades in 11 countries in sub-Saharan Africa, still relies on its home market for 71 percent of operating profit.

Cape Town vs Johannesburg- where are retailers really winning?
15/07/2019 - 16:11
New global research by Vend, a cloud-based retail software platform for independent retailers, has found that Cape Town independent stores enjoy average transaction values up to 49% higher than retailers in Johannesburg.

Walmart must hire someone who can stop the bleeding at its online business
15/07/2019 - 09:55
Walmart has a hole to fill at its online unit, and whoever assumes the role faces a big challenge ahead.

Poultry body defends call for 82% chicken tariffs
12/07/2019 - 08:50
The South African Poultry Association (Sapa) has defended its decision to call for a hike in chicken imports tariffs to 82 percent, up from the current 37 percent.