Get­ting through re­ces­sion un­scathed

The Star Early Edition - - OPINION & ANALYSIS - Tan­di­s­izwe Mahlut­shana Tan­di­s­izwe Mahlut­shana is an ex­ec­u­tive at PPS In­vest­ments.

THE BIG UGLY “R” word has once again reared its head – re­ces­sion. Statis­tics South Africa’s lat­est gross do­mes­tic prod­uct (GDP) re­port re­vealed that the South African econ­omy has recorded two con­sec­u­tive quar­ters of neg­a­tive growth, which in­di­cates a “tech­ni­cal re­ces­sion”.

While the an­nounce­ment was made re­cently, the coun­try had been in a “re­ces­sion” for six months (quar­ter (Q) 4 of 2016 and Q1 of 2017). There­fore, the con­sumer has al­ready been feel­ing the ef­fects of this re­ces­sion, and could po­ten­tially con­tinue long af­ter pos­i­tive growth has been achieved.

It has been re­ported that pre­lim­i­nary data in­di­cates that the next GDP fig­ure could po­ten­tially be pos­i­tive, rem­i­nis­cent of what we ex­pe­ri­enced last year.

The GDP fig­ure for Q1-2016 was -1.2 per­cent, but by Q2-2016, the econ­omy achieved a 3.3 per­cent GDP in­crease.

Weath­ered through

Nonethe­less, South Africans have sur­vived sev­eral global and lo­cal re­ces­sions. Since 1960, there have been four global re­ces­sions while South Africa has weath­ered through eight lo­cal re­ces­sions.

Prob­a­bly the worst of the re­ces­sions ob­served was the 2008 fi­nan­cial cri­sis, where it is es­ti­mated that close to 900 000 jobs were lost by the South African econ­omy. The coun­try was in a re­ces­sion for 9 months, which is a much shorter pe­riod when com­pared to other coun­tries, such as Greece, which ex­pe­ri­enced a re­ces­sion for 63 con­sec­u­tive months from 2008 un­til 2014.

Re­cov­er­ing from a re­ces­sion varies from re­gion to re­gion. Re­search by the Fed­eral Re­serve Bank of St Louis shows that the US and China grew by 12 per­cent and 65 per­cent, re­spec­tively, be­tween Q4-2008 and Q4-2014, while the Ital­ian and Greek economies grew and then shrank again, with their to­tal GDP de­clin­ing by 6 per­cent and 24 per­cent, re­spec­tively, since the fi­nan­cial cri­sis started.

This can be forthrightly com­pre­hended as fun­da­men­tal eco­nomic is­sues vary from one coun­try to the next. Cur­rently, there is an on­go­ing de­bate in South Africa which aims to di­ag­nose our im­ped­i­ments to achiev­ing sus­tain­able eco­nomic growth.

At a macro level, we have been grap­pling with pol­icy un­cer­tainty that many pun­dits ar­gue has led to a “pri­vate sec­tor in­vest­ment strike” – where com­pa­nies ei­ther pre­fer to keep stock­piles of cash or in­vest it abroad in­stead of in­vest­ing in the lo­cal econ­omy.

Re­cent statis­tics show that cur­rent bank de­posits of these com­pa­nies amount to R725 bil­lion. Only time will tell whether Fi­nance Min­is­ter Malusi Gi­gaba will be able to un­lock this po­ten­tial pri­vate sec­tor in­vest­ment, which could re­sult in much-needed job cre­ation nec­es­sary for achiev­ing solid and sus­tain­able eco­nomic growth. Time will tell whether Gi­gaba is more sym­pa­thetic to in­creased gov­ern­ment ex­pen­di­ture or fis­cal re­straint.

Op­por­tu­ni­ties

At a mi­cro level, there are op­por­tu­ni­ties for con­sumers to cap­i­talise on to ride out this tough eco­nomic wave. With in­ter­est rates re­main­ing un­changed in the pre­vi­ous MPC meeting, the time is now for con­sumers to ex­ploit their debt sit­u­a­tions by pay­ing off out­stand­ing debt faster.

How­ever, there is no telling when ei­ther of these sit­u­a­tions may change. Another op­por­tu­nity for con­sumers is to cut back on dis­cre­tionary spend­ing and chan­nel that money into sav­ings and in­vest­ments with the aim of in­creas­ing their fu­ture po­ten­tial buy­ing power.

With a myr­iad of in­vest­ment op­tions that con­sumers could use to in­vest, unit trusts of­fer a fairly ac­ces­si­ble way for the av­er­age investor to kick start their in­vest­ment jour­ney, but this too could be a daunt­ing task with more than 1 400 unit trusts avail­able to South African in­vestors.

Within a multi-man­age­ment in­vest­ment struc­ture, se­lected unit trusts are al­ready com­bined for in­vestors to cre­ate a be­spoke in­vest­ment op­tion di­ver­si­fied across as­set classes, re­gions and in­vest­ment styles.

One of the ad­van­tages of us­ing a multi-man­ager is that it re­moves the bur­den of trawl­ing the unit trust uni­verse, look­ing for the one best suited to your in­vest­ment needs. Dur­ing a re­ces­sion, it’s even more crit­i­cal for con­sumers to re­sist the temp­ta­tion of tak­ing on un­nec­es­sary debt, limit dis­cre­tionary spend­ing and in­stead save more.

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