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What page is Mr Manuel reading from?

21 November 2008 Gareth Stokes

You need a cool head to survive an economic crisis. South Africa is fortunate to have a finance minister with exactly those credentials. No matter how shocking the economic statistics locally and abroad, Manuel sticks firmly to his guns. He won’t accept t

Feeling the strain – sectors of the economy are already deep in the red

Despite concerns about the strength of our trading partners, Treasury predicts GDP growth of 3.7% for 2008, and 3% in 2009. So the prognosis is already lower than the 5% average growth achieved between 2004 and 2007. What troubles us is where Manuel thinks this growth will come from. It’s not going to come from the export market. Even if the rand continues to weaken against its major trading currencies you can’t expect to boost exports into recession. And there’s enough evidence to suggest the growth won’t be generated from within our boundaries either.

The consumer, largely credited with keeping the economy chugging along till mid-2007, has hit the skids. But don’t take our word for it – just look at any of the consumer driven sectors. Credit retailers, general retailers and motor vehicle retailers are trading through some of the toughest conditions they can remember. Retails sales have been in decline for five months – with a 5.1% decline year-on-year to September. The National Association of Automobile Manufacturers (NAAMSA) reported a 33% decline in October 2008 new vehicle sales and said that daily sales of new vehicles were the lowest in five years. And house prices, as reported by Absa Property Indices, have posted nine consecutive months of negative real growth.

What about mining and construction? The problem with global recession is that the demand for commodities falls through the floor. That’s why oil has plummeted from highs of $140 per barrel to less than $50 in such a short space of time. We’ve seen similar price corrections in gold and platinum with the result that many of the country’s major mining outfits are cutting back on capital expenditure. Which is why we expect the construction sector will suffer too. We’re not ignoring the massive infrastructure projects planned for South Africa over the next decade; but we’re not sure that government and the private sector will secure the funding required to complete them!

Forget Treasury – what do the experts think?

To find out what the experts predict for our economy, we’ll turn to the “Economic Prospects – Fourth Quarter 2008” report published recently by the Bureau for Economic Research (BER). They expect real GDP growth to slow to 3.3% this year. And here’s the ‘big’ statement: “GDP growth is forecast to decelerate further, to 1.9% during 2009.” If the prediction pans out it will be the worst growth since the 0.5% achieved n 1998. Why the aggressive de-rating? The BER expects private consumption, fixed investment and export growth to fall significantly next year.

Like Manuel, the BER believes South Africa will avoid a technical recession. But we argue that you shouldn’t rely on data to support an economic phenomenon. The impact of a severe reduction in GDP growth when an entire economy is poised for six percent growth is huge. The acid test of recession will be in the experience of the South African people. As the global market slowdown bites various companies plying their trade within our borders are going to have to revise their operating requirements. That means increased unemployment and further pressure on the domestic market.

Forget the technical recession! With inflation close to record highs, real wage settlements on the decline and the prospect of mine closures looming we think that the physical requirements for a recession have already been met.

Editor’s thoughts:
Modern economics is all about the numbers. We’re so obsessed with data and statistics that we miss what’s happening in the real world. Right now companies in South Africa are shedding jobs and putting capital expenditure on hold. Do you think we have to wait until the data confirms a technical recession – or is the country already on the rocks? Add your comments below, or send them to

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