Did South Africa slip into a recession while nobody noticed?
Regular contributor to FSP Invest's South African Investor publication, Dawie Roodt, recently reported that he believes South Africa is already in recession.
As we know, Roodt doesn't make any statement lightly. He is usually armed with facts and figures before he makes a statement like this.
This begs the question, did South Africa slip into a recession and nobody noticed?
Let's take a closer look at the reasons behind the statement...
Gross Domestic Product (GDP) figures released by Statistics South Africa reveal some sad numbers. The economy shrank 1.2%. This is much lower than the meagre growth of 0.4% we saw in the fourth quarter of 2015.
The most recent South African economic results are bleak
The devastating drought that’s been pummelling the agricultural industry saw it fall 6.5%, storage and communications is down 2.7% while electricity, gas and water fell 2.8%.
By far the biggest negative impact on the economy comes from the ailing mining and quarrying sector. Results have come in sharply lower at -18.1%. This is because of faltering global demand and a fall in international commodity prices.
Is South Africa managing to dodge the recession bullet?
Well, a technical recession happens when the country receives two quarters of economic decline in a row. This hasn’t happened in South Africa yet.
The problem is, since 2014, the country has seen three rounds of negative GDP results. In the first quarter of 2014, GDP fell to -1.6%, but recovered in the following months. In the second quarter of 2015 it again declined to -2%. Today, it is down 1.2%.
Roodt says, “We’ve been in a recession for the past year because our economy is growing well below the growth levels of our population.”
He explains that we need to improve the performance of the economy’s key sectors like mining and agriculture to create employment for unskilled people. But we can’t do this, because both of these sectors are in a recession.
So, while the rest of the country is waiting to see what happens with overall GDP results in the next quarter, South Africa has slipped into a recession and no one has noticed.
Roodt concludes, “To get the country back on track, the government needs to address labour legislation, skills development and infrastructure.”
If this is able to happen under the current leadership of the country, this remains to be seen.