Economist Cees Bruggemans says that South African business and consumer confidence remains poor, flirting with recessionary territory.
The electricity constraint is debilitating for heavy industry. Strike action hamstrings mining output. Durable consumer goods (cars, furniture, appliances) are experiencing falling sales volumes.
Yet the country is not in recession. It may be experiencing a growth recession, though, in which growth is slow but not low enough to be a technical recession, yet unemployment rises as more jobs are lost than created.
The mining strike action, affecting 0.5% of the labour force, is too small to dip the country overall into negative output. The electricity constraint prevents certain types of output increasing, but there is no catastrophic loss of electricity (so far) cutting average output from present levels overall.
The household consumer is either prudently adjusting commitments, or the reduced access to unsecured consumer borrowing and a substantially reduced sense of job and/or income security (overtime, bonuses, commission) is having that effect, or both.
Tellingly, salaries keep increasing at 7% annually, but overall income (including flexible types of remuneration such as bonuses and overtime) are only doing +4%, while those not on guaranteed income such as commission and fees are in many cases struggling.
Certainly, general dealers are experiencing restrained retail conditions (February seeing only 1% growth year-on-year), which points to restrained spending among especially lower income households hit hardest by limited income gains and the high-visibility cost increases, such as travel, electricity, municipal charges, food and supermarket prices generally.
But the usual recession trigger (an abrupt inventory adjustment leading to large output cutbacks) is not underway. If anything, inventories in recent years surprise with their atypical, sleepy-hollow sideways movement, thereby reinforcing a sense of controlled stagnation.
Nothing big has hit consumer spending, private fixed investment, exports or government spending to trigger a massively defensive business cutback.
Indeed, an important section of households, a modest urban majority according to FNB/BER consumer surveys, remains positive about own financial prospects.
Not everyone is suffering equally, which can be seen reflected in the ongoing chirpiness of still rapidly growing clothing retail sales volumes, again +10% year-on-year in February. Not boom time growth, but far from recession.
At the same time, conditions are constrained enough to keep businesses defensive, treating the home base as a holding operation and putting more focus on expanding in other country markets with much stronger growth franchises.
In the process, private fixed investment growth is being kept curtailed to low single digit while public infrastructure investment growth is being held down by skill and financial constraints.
Together with a constrained consumer and an export sector hampered by slow or slowing growth in key (EU, China) markets and suffering severe trade competition holding back export growth, it creates an overall growth picture skirting dangerously on the edge of a nervous breakdown (slide into recession), yet just not tipping over.
One consequence is no addition of new jobs, though evidence of private jobs being lost and less productive public job additions preventing worse.
This condition can linger for quite some while as some of these features are self-reinforcing.
Growth recession it is, until:
- World growth becomes stronger, especially in Europe, and/or we overcome more clearly the trade competition;
- Government succeeds in offering more of a lead with accelerated infrastructure effort and offering less of a put-off by way of reduced business meddling;
- Households experience less job/income insecurity and regain greater access to credit; and
- Business sees more evidence locally of expansion potential, becoming much less defensive and willing to relax a notch or two, accelerating investment spending and even hiring more people once again.
Even so, for some while longer it may be more exciting to watch paint dry and grass grow. But we should get there, if only later in the decade.
By Cees Bruggemans, economist at Bruggemans & Associates