SA’s recession will be short-lived, says expert

The current technical recession that South Africa is experiencing will be short-lived – thanks to the decreasing inflation this year and possibly next, says a leading African economic analyst.

South Africa entered a technical recession after two consecutive quarters of negative growth. The country had a 2016 Q4 growth of -0.1% and a 2017 Q1 growth of -0.2 %, which raised fears of a full-blown recession.

However, Stéphane Colliac, chief economist for France and Africa with Euler Hermes, an Allianz Group subsidiary, said there was nothing to worry about as the recession will be short-lived.

Colliac said while South Africa would stay at near stagnation level for some time, some factors would help to keep its head above water.

“There is good news in the form of inflation. Euler Hermes now expects a decrease in inflation of +5% in both 2017 and 2018, comfortably within the central bank’s target band [3-6%)], providing breathing room,” Colliac said.

She said the country’s 2016 laggard, commodities, performed well during the first quarter (agriculture +5.1% and mining +3% q/q).

Retail sales weakened markedly in January and February.

“This was just after inflation peaked as a result of increasing oil and food prices – fuel prices increased by 16% year-on-year at the beginning of the year. Inflation decreased markedly at 5.3% year-on-year in April,” she said.

Unfortunately, she said, the negative carry-over effect was driving growth expectations lower. South Africa would probably remain at near stagnation for some time.

Recent political evolutions had not shown any sign of resolution that would break the stagnant growth; instead, public debt was growing, to 53% of GDP in 2017.

In her projection of the continent’s performance, she did not limit political uncertainty to South Africa.

“Political uncertainty is the biggest concern. It compounds weak economic performance in commodity-exporting countries such as Gabon, Ghana, Nigeria and South Africa. It also affects foreign direct investment as foreign investors are sceptical about putting money into a country/region experiencing political upheaval and extremism,” Colliac said. – ericn@citizen.co.za