No reason for suicide
But depression over recession is justified
DIRECTOR-GENERAL of the Treasury Lesetja Kganyago said in response to the shock recession figures that “no one tried to commit suicide at Treasury because of these numbers”. True, it’s no reason for suicide – but some depression is justified.
Statistics SA reported a much worse-thanexpected 6,4% drop in gross domestic product (GDP) in the first quarter of this year. This followed a decline of 1,8% in the fourth quarter of last year. As two consecutive quarters of negative growth is the definition of a recession, SA is now in its first recession in 17 years. The fall in GDP was the worst since the third quarter of 1984, when GDP shrank 6,5%. (All figures are quarter-on-quarter, seasonally adjusted and annualised growth rates, unless otherwise stated.)
What these numbers mean is that South Africans have become poorer on a per capita basis. Given a population growth rate of about 1,5%, GDP growth of less than that means we are getting poorer. An actual decline in GDP makes that situation so much worse. For the man in the street, it means the threat of job losses. Some economists expect 300 000 jobs to be lost in this recession.
On a practical level, these figures have serious implications for the Treasury. Though Kganyago didn’t specify, he acknowledged that the Treasury would have to downgrade the GDP forecasts that the Budget is based on. He said SA would do well to record zero growth for the year as a whole – a projection that private sector economists regard as far too optimistic.
In practical terms, shrinking GDP means shrinking Government revenue. Given Government’s massive commitments to social welfare and infrastructure spending, this means that Government will have to borrow more to meet those commitments. Depending on the severity of the depth and duration of the recession, SA could again find itself on the brink of a debt trap.
Economists believe SA will record a further fall in GDP in the second quarter of this year before recovery sets in during the second half of the year. Stanlib economist Kevin Lings says: “The outlook for the next few quarters points to ongoing weakness in the SA economy, with the current slowdown expected to remain severe in the second quarter of 2009. There is obviously a strong relationship between the Reserve Bank’s leading economic indicator and SA’s GDP performance. The leading indicator has been pointing to a meaningful slowdown in domestic economic activity for some time and continues to suggest further declines in the quarters ahead.”
Lings expects GDP to slump by around 2,2% this year – a far cry from Kganyago’s 0%. But other economists are less pessimistic. The Bureau for Economic Research’s (BER) Hugo Pienaar says his unofficial estimate is of a decline of 1,5% for the full year. This follows growth of 3,1% for 2008 as a whole, down from 5,1% in 2007. In the period 2003- 2007, the SA economy grew by an average rate of 5% – leading some commentators to think that Government’s target of 6% annual growth by 2010 could be reached.
But now economists say the recovery, when it comes, will be tepid and will take a long time to warm up. Pienaar says he expects economic growth of 2,5% next year, based largely on the expected recovery in the global economy and the lagged effects of aggressive interest rate cuts in SA. The BER’s medium-term growth forecast shows growth doesn’t return to 5% in the next five years – 4% is the best we can hope for.
A 2,5% growth rate is, at least, more than the population growth rate but is a far cry from the boom times of 2003-2007 and will continue to pose revenue problems for the Treasury.
One of the striking features of the GDP breakdown is the massive extent to which SA’s export sectors have been hard hit. Mining output fell almost 33% in the first quarter after a marginal increase in the fourth quarter. Manufacturing fell by about 22%, the same as the fourth quarter’s performance. If these sectors are to recover, the global economy will have to recover.
Internationally, there’s been a scramble in the markets to spot the “green shoots of recovery”. But this has mostly consisted of declines in the rates of decline and improvements in business and consumer sentiment from very low levels. It’s a question of spot-