SA economy shows all the hallmarks of a recession

South Africa’s economy is already in a recession and citizens are getting poor, which is further confirmed by the downgrade of the country’s economic growth outlook to 0.1% by the International Monetary Fund (IMF).

This is the view held by the deputy chairman at Sasfin Securities David Shapiro on Friday at the 2016 Moneyweb Expo, where he delivered a presentation on evaluating South Africa’s economic and political future.

The IMF revised its outlook from its 0.7% citing deep-rooted structural problems, infrastructure challenges and the deficit in skills which is limiting growth in the continent’s third-largest economy.

“We can’t survive on a 0.1% economy. Although the economy is not really in a technical recession, but it actually is, as we are not growing at the same rate as the population or gross domestic product (GDP) per capita, which means that the size of the economy divided by the population is going down,” says Shapiro.

He says South Africa’s GDP per capita may be US$5 000 and keeps declining, while the US is probably at US$40 000. “We are about eight to ten times poorer than the average American.”

Arguably, the biggest problem South Africa faces is youth unemployment. “Those employed are having to carry the load of those who are unemployed… There is just not enough money for the tax base to invest in our future. That is the big issue. We need high growth and we need to improve our growth. The outside world is not helping our economy.”

Commodity prices are not increasing to support South Africa’s economy, which still relies on the mining and manufacturing sector. Even the recovery in the gold price, as seen in recent weeks, won’t add impetus to economic growth, as South Africa’s economy is not a big player of bullion.

Describing the pressure mining companies are facing, Shapiro uses Anglo American, once a bellwether for the mining sector and a proxy for South Africa’s economy as an example – the company’s stock on the JSE has been down 40%. “This reflects how South Africa’s mining sector has been under so much pressure for many years,” says Shapiro.

The manufacturing sector is also in the same boat. He says that the stock of steel manufacturer Arcelor Mittal has also been down by 40%. At the same time, the JSE’s All Share Index at the same period has climbed by 165%.

The global economy is not rosy either with a number of issues that have made investors jittery. The decision for Britain to leave the 28-member European Union, the upcoming US elections, the rout in the international oil price, the gradual rise of interest rates by the US Federal Reserve and the slowdown of China’s economy, are some of the issues top of mind for investors.

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