Recession fears for South Africa

Economist Cees Bruggemans says that South Africa’s chances for recession in 2016 are very high, with some believing that the country is already in a negative economic growth phase.

In March, Stats SA noted that South Africa’s Gross Domestic Product (GDP) for the 4th quarter of 2015 came in at 0.6% year-on-year.

The IMF and the World Bank expect growth for 2016 to be at 0.7% and 0.6%, respectively, while the SA government anticipates growth at 0.9%.

A former consulting economist for FNB, Bruggemans said in a note that if Team SA can avert labour strife and produce more electricity to yield more activity, “it may overcome the consumption slide now slowly gathering momentum, and keep the economy in growth”.

However, it is more likely that a slowdown in household and government consumption growth “could have put us into recession this quarter”, the economist said.

“What are the chances? (Very high) for recession,” Bruggemans said.

“For some it is a matter of fact that SA is in recession, or at least rapidly gliding towards one, with 1Q16 already deeply suspect, and the looming quarters (2Q16, 3Q16 & 4Q16) most at risk,” he said.

Factually, some 20% of GDP is already in recession, some of it already for many quarters, according to Bruggemans, highlighting the agriculture and  mining industries. “So that is our primary sector gone, about 10% of GDP.”

Additional sectors under strain include manufacturing, building, transport, retail, communication and other mostly regional-based services.

“Some secondary activities are also underwater, such as electricity generation and non-residential building activity,” he said.

“There are the many arguments that the main fuel lines feeding the broader economy are now also severely constricted. Job losses, food price spikes, higher tax and interest rate burdens, all conspiring to take away real household income,” Bruggemans said.

He said that the current climate is ‘poor’ for reviving business confidence and investment efforts, ‘given the manner in which government ministers keep accelerating their pet development state agendas’.

Bruggemans said that while all the ‘political stuff’ in the lead up to the local government elections in August, is holding everybody’s attention, “the economy may bleed some more, and rating agencies will get more antsy going into 2017”.

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Recession fears for South Africa