An end to technical recession
Recession is a difficult concept to grasp. Economists tell us the country is in technical recession after two consecutive periods of negative GDP growth. Households, on the other hand, know things are tight when expenditure exceeds income for more than a couple of months! Technical recession is not a common occurrence. Prior to our 2009 woes the country last suffered recession 17-years ago! Over that period we’re sure households felt the pinch repeatedly.
The question is whether Joe average should obsess over statistical measures of the country’s economic performance. Should we care about a manipulated number that tells us about the state of the economy two (or more) months in the past? So much fuss is made about the number we tend to forget its historic nature… And to make matters worse Statistics SA has license to fiddle with the economic inputs. These concerns aside, let’s take a look at what the Q3 GDP statistics reveal about the state of the domestic economy.
GDP on the rise again
In the third quarter of 2009 the South African economy grew 0.9% quarter-on-quarter (q/q). This spells the end to the technical recession that was confirmed in Q1 of the same year. The number was better than market expectations – though economists had offered a range of ‘guesses’ – some as low as -1.2% q/q and some as high as 2%! Statistics SA also published revisions to the first and second quarter GDP growth rates. Q1 2009 was revised to -7.4% q/q and Q2 2009 to -2.8%. South Africa grew at an annual rate of 3.7% in 2008 and the economy is forecast to contract by 1.8% year-on-year for 2009.
Where did the Q3 2009 growth come from? “The improvement in Q3 2009 GDP was mainly due to a pick-up in the manufacturing sector off an exceptionally low base,” says Kevin Lings, economist at StanLib. He says companies were hard pressed to restore inventories after a virtual halt in manufacturing in the first half of the year. Improvements across all manufacturing sectors contributed to strong growth (+7.6% q/q) in the period. The construction sector weighed in with another solid performance (+6.1% q/q) too. Massive public sector infrastructure projects, 2010 stadium builds and Gautrain contributed to this sector being the best performer since 2000, with 34 quarters of uninterrupted growth!
Although South Africa has tiptoed out of technical recession the country faces many challenges if it hopes to return to the 5% per annum GDP growth experienced prior to the market correction. According to Lings: “The most concerning aspects of the latest GDP estimate is the ongoing decline in retail trade activity (which has now fallen for six consecutive quarters) and the slump in financial services activity (down for three consecutive quarters).” He was also disappointed with the 5.8% q/q decline in the country’s mining sector. This contraction was blamed on strike action and other work stoppages during the quarter.
You might want to hold on to that champagne
Economists have warned consumers not to get too excited by the latest news. “Consumer spending remains under enormous pressure, with little sign of any real improvement,” says Lings. There are a number of reasons for this. One is that banks have significantly tightened lending criteria as they battle cyclically high bad debts. Another is the significant increase in unemployment. South Africa has lost in the region of one million jobs in the last 15-months… To put the figure in perspective consider that it took five years – the boom times between 2002 and 2007 – to create two million jobs. The recovery will lose momentum if the consumer fails to return to the party!
What does this mean for South Africa Inc? The latest statistics confirm a slow exit from recession. “The recovery is not yet broad-based and remains fairly fragile,” says Lings. He singles out consumer spending as an area of major concern. Economists expect growth to continue through 2010 and have pencilled in year-on-year growth of around 2.5%. Standard Bank economist Danelee van Dyk is even more upbeat: “We are optimistic about SA achieving a growth rate of 3% in 2010.”
Editor’s thoughts: There you have it. Two months ago South Africa exited technical recession. This means the country is on the front foot again – and that both business and consumer will power ahead through 2010. Or does it? Have you noticed any marked improvements in business activity or business sentiment since October 2009? Add your comments below, or send them to [email protected]
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