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Is South Africa heading for a recession again?

by , 15 December 2021
Is South Africa heading for a recession again?
Last week's GDP data showed that South Africa's economy shrunk in the third quarter of 2021.

This follows four quarters of economic growth from pandemic lows.

It also means that another quarter of economic contraction would put the country back in recession.

So, are we heading back into recession, or will the economy turn upwards from here?

Let's have a look at what the numbers say…
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Wow!  What a great quarter my friends at Pickpocket Trader
have just had…
212.01% on the South African rand…
 
55.56% on the Nasdaq…
 
217.06% on the SP500…
 
70.95% on Brent Crude…
 
And 128.64% on Brent Crude again…
 
 
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Why did SA’s economy crash in the third quarter?
 
The third quarter followed on the July looting spree, with subsequent damage to retail sales, as well as another month of lockdowns.
 
This saw the SA economy shrink 1.5% in the third quarter of 2021.
 
The agriculture industry recorded its most significant drop in production since 2016, contracting by 13.6%. Together with a decline in the production of animal products, the industry in KwaZulu-Natal was dealt a significant blow by the civil disorder in July. Maize, citrus and sugarcane farms recorded losses from fires set during the upheaval.
 
The trade industry shrank by 5.5% as all sectors reported losses. Wholesale, retail and motor trade were negatively affected by the widespread looting and destruction that gripped KwaZulu-Natal and Gauteng.
 
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What’s the prospects for Q4 and 2022?
 
By all counts it seems like the fourth quarter of 2021 will look a lot better than the third.
 
Car sales in July 2021 hit a low of 33,061 for the month. Since then car sales have sustained 40,000+ a month every single month. For the first seven months of 2021 car sales averaged 37,210 a month. In the subsequent months car sales have averaged 41,809. That’s an improvement of 12.63%.
 
Both August and September saw retail sales grow by 4.9% and 5.1%, with a slight dip in October. November however was a good month, and South Africans spent a lot on Black Friday.
 
FNB and Standard Bank tracked the number of card transactions that ran through their systems on this year’s Black Friday, which fell a day after payday for many consumers in SA.
 
FNB says spending on the “big discount day” increased by 19% year on year at its speed points. The bank’s cardholders made purchases of about R2.5-billion on Black Friday, an increase of 15% compared with 2020.
 
Standard Bank also saw similar transaction patterns on its systems. According to the bank, total card transactions for Black Friday increased by 17% compared with the same period last year.
 
Payment processor PayU saw a 30% increase in total online transactions, with a 6% increase in total spending for Black Friday.
 
Overall – I expect South Africa to narrowly escape a recession with slight economic growth in Q4 of 2021…
 
There are risks to this recovery however.
 
The rand is weak – at R16 to the dollar. And the oil price is still above $70 a barrel.
 
That means fuel will remain at its high levels.
 
This is an inflation risk to South Africa – and the SA Reserve Bank (SARB) has already increased interest rates by 0.25% to curb inflation. October inflation was 5%, which is close to the upper band the SARB targets.
 
Any further interest rate increases will risk our economic recovery. But higher inflation would also be a big negative.
 
Inflation will be closely tied to the supply chain issues the whole world is experiencing because of lockdowns and factory shutdowns as well as container shortages. If this can be fixed early in 2022, inflation will taper down. If it can’t, inflation will remain high.
 
As far as the Covid pandemic goes – for now things don’t look too bleak.
 
Hospitals aren’t filling up nearly as fast as infections are rising. Between the vaccine and people with natural immunity the new variant isn’t wreaking havoc. The UK has even removed SA from its red list again and opened travel once more.
 
Many doctors have hopes that this variant with high infectivity and lower hospitalisation will be the beginning of the end of the pandemic.
 
If it does – we can expect a much more prosperous 2022.
 
With good rains and big harvests expected, the agriculture sector should have a good 2022. Commodity prices have pulled back from the highs of 2021, but remain at favourable levels, and should they remain, mining companies will have another great year.
 
My money is behind companies with diversified incomes from both SA and offshore – especially companies that have paid off debt more aggressively.
 
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2021 was an exceptional year for penny stocks – Our closed Red Hot Penny Share portfolio provided us with an average gain of 72.82% on 20 stocks for 2021, with a win rate of 80%.
 
In comparison, the Alt-X index is up 30% for the year, whilst the All Share index is up 19%. The Small Cap Index was the top performer of the lot with 42% for 2021 to date. 
 


Is South Africa heading for a recession again?
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