South Africa facing its longest downward business cycle since 1945: analysts

In 2018 emerging markets will average economic growth rates of around 5% – but South Africa will probably achieve only a tenth of that.

This is according to a new report by the Centre for Risk Analysis (CRA) which notes that the country is currently experiencing its longest downward phase since 1945.

“This is extraordinary, since other emerging markets are driving the global economy, and again shows that South African commentators have grown to accept what should be completely unacceptable economic performance,” said Frans Cronje, CEO of the Institute for Race Relations and editor in chief of the CRA report.

Cronje said this estimate was based on data provided by the SA Reserve Bank (SARB) on the country’s business cycle phases dating back to the end of the World War 2 in 1945.

The data show that South Africa’s business has been in a downward phase since December 2013 – making it just under five years since the cycle had seen an upward trajectory.

“Beyond the growth data, this report shows that the structure of GDP continues to evolve in the direction of a tertiary-orientated and post-industrial economy — a trend driven by global forces as much as by hostile and counterproductive labour, mining and agricultural policies in South Africa,” Cronje said.

He added that there is ‘relatively little life’ across any of the ten major sectors of the economy tracked by this report — a problem reflected in their combined weak contribution to employment growth.

“Even the general government services sector, often immune to recessionary pressures, saw a quarter-on-quarter reduction of 93,000 in the number of people employed.

“More jobs will surely be lost as the fiscal crisis forces the government into some measure of austerity.”

A stagflationary environment

The CRA report notes that while weak domestic consumption and stressed consumers have kept inflation in check, there are risks in rising global oil prices and the potential for further currency weakness.

This means that South Africa may yet drift into a stagflationary environment – defined as persistent high inflation combined with high unemployment and stagnant demand in a country’s economy.

“Great, then, was our alarm at the recent stimulus package announced by the government,” said Cronje.

“It fell far short of what will be necessary to reignite the South African economy. The crisis South Africa faces is not one of inadequate government spending or insufficient stimulus, but rather one of an economy battered by a decade of hostile policy.

“The best (and only) real ‘stimulus’ package open to the government is one of policy reform. Until such a package is put together, there will be little improvement in the numbers reflected in this report, with much risk leaning to the downside,” he said.


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