SA in ‘full-blown recession’, and how to cope in the money mess

Batten down the hatches, bite the bullet, or the evergreen politicians’ favourite preach, tighten your belts. Pick a cliche, but 10 years after the 2008 collapse, the economy has tanked – again.

With another rise in the petrol price on the horizon and a possible rate increase predicted by economist Chris Gilmour, it’s only going to get more difficult in the foreseeable future.

“This is a full-blown recession and if you speak to other economists, they’ll tell you. There is nothing technical about it,” said Gilmour.

“The term technical is used purely because it’s a very mechanical way of measuring two successive quarters of negative economic growth when, in fact, on a per capita basis, if you look at the gross domestic product per average person in the country, we have been in a declining trend for the best part of five to 10 years.”

“In other words, we have been in recession for a long, long, time. The bottom line is, everyone is getting poorer.”

If you’re lucky enough to have a job, no matter how much you loathe it, hang on to it, Gilmour said.

“If you’ve got debt, get rid of it or reduce it as much as you possibly can, and live within your means. There’s not much else you can do,” Gilmour said. “Try and split your costs into fixed and variable costs. There’s not much you can do about your fixed costs, but you can cut back on your variable costs.”

Disputing the figures released on unemployment stats, Gilmour said the real figure was probably closer to the broader definition of unemployment, which was 40%, and maybe even higher.

“If you look at the demographic that really matters, the 18 to 25-year-old range, it’s closer to 60% and government really doesn’t have a plan to cater for these young people. It’s not surprising they get really depressed and disillusioned.”

Gilmour said having a university degree in a field where people were needed, such as engineering, improved a jobseeker’s chances of getting employment.

Yet, “I have seen on LinkedIn and Facebook and Twitter young, black graduates, obviously very bright with good degrees, who can’t find jobs. Again, that’s telling you the economy is pretty moribund.”

Gilmour said there were steps people could take to temper the impact of the recession. Living from hand to mouth – as many South Africans do in a tight economy – means we’ll be spending less in order to make it as close to the next payday as possible, which will have consequences of its own.

“In an economy that’s contracting, if people are going to be cutting back, it’s actually going to make the situation worse. So not spending is not adding to economic growth and it just adds to the downward spiral,” said Gilmour.

“[Minister of Finance] Nhlanhla Nene says he has a stimulus plan.

“The policies employed in the past were to try and get consumer-led growth. Well, now the consumer is tapped out.”

INFO

The Laffer Curve 

• The Laffer Curve describes how changes in tax rates affect government revenues in two ways. One is immediate, which Laffer describes as “arithmetic”. Every rand in tax cuts translates directly to one less rand in government revenue.
• The other effect is longer-term, which Laffer describes as the “economic” effect. It works in the opposite direction. Lower tax rates put money into the hands of taxpayers, who spend it. It creates more business activity to meet consumer demand. Companies hire more workers, who then spend their additional income. This boost to economic growth generates a larger tax base and replaces any revenue lost from the tax cut. – thebalance.com

– amandaw@citizen.co.za

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