Recession looms but what about the long-term slump?

A recession is looming according to economists although all the economic information for the third quarter of 2022 is not in yet.

None of the information so far bode well, but one economist says we should not worry about a technical recession, but rather about the long-term slump the country has been in since December 2013.

What is a technical recession? It is a period of temporary economic decline when trade and industrial activity are reduced. This is usually confirmed by a fall in gross domestic product (GDP) in two successive quarter, with declines in economic output, consumer demand and employment. You cannot help but feel that this sounds familiar.

However, prof Jannie Rossouw, visiting professor at the Wits Business School, says he is not as worried about a recession as much as he is about the long-term slump that the country has been in since December 2013.

“This long-term slump is much more serious and we should be asking when we are going to get out of this slump. There is no plan to get out of it and we know that nothing will happen between now and December when the ANC elects its new leaders. Government must stop trying to make all kinds of rules and concentrate on just two things: stop load shedding and get municipalities to work.”

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Technical recession in 3^rd quarter

Independent economist, prof Bonke Dumisa, says South Africa will definitely enter a technical recession when the rest of the results for the third quarter are announced. The Absa Purchasing Manager’s Index (PMI) releases on Monday already confirmed this, he says.

“Load shedding caused most of the damage, as international Brent crude oil prices fell and the petrol price could be reduced twice. However, the diesel price has increased and even a few cents per litre makes a big difference as the most form of transport is done by road, adding to the cost of doing business and cost-of-living.”

He says although inflation for September is expected to decrease, he says the horse has bolted, but he does not think it will get as bad as in 2008. He also points out that the inflation rate in the country has never been lower than the rate in the US, UK and EU.  

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Available figures not boding well

Hugo Pienaar, economist at the Bureau for Economic Research (BER) at Stellenbosch University, says we do not know if we are in a recession yet as there is a lot of data still outstanding for the third quarter.

“However, the activity data that we have for the entire third quarter, including the Absa PMI and vehicle sales, do not bode well. Then of course, we had unprecedented load shedding in September. Against this backdrop, it is touch-and-go whether the economy dipped into a technical recession in the third quarter, but we will only know for real in early December when the GDP figures for the June to September quarter are released.”

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Most advanced economies will enter recession soon

Jee-A van der Linde, senior economist at Oxford Economics Africa, says when the next national accounts data is released, it will likely show that the South African economy entered a recession in the third quarter, although the quarterly contraction in real GDP should be less than the preceding quarter.

“However, elevated stages of load shedding are costing the domestic economy dearly, while the global growth outlook has weakened. Our recently revised forecasts assume that most advanced economies will enter recession in late 2022 or early 2023. South Africa has benefited from external factors over the past year thanks to high mineral export prices and relatively robust demand for local goods, but that is changing.”