Are We Now in a Recession?

Well, it was worse than expected.  ZA GDP fell by 0.6% in the first quarter of the year.   What this means is that the economy is not growing; it is shrinking.  And at a time when inflation is disturbingly high.   As is unemployment.    Ouch.  Not good news for President Zuma’s new cabinet, nor indeed for any of us.    ZA Confidential secured some speedy reaction from some of our experts….

Mike Schussler from

Depending on how the platinum sector strike goes on, we could already be in a recession – which is 2 quarters of negative growth. Ultimately, the strike and the length of the strike in the platinum sector, and number of holidays in Q2, could cause the recession  I think manufacturing will look a lot worse in the second quarter. This is self-inflicted and it is not at all good for a new Cabinet to come in now.  We really need to sit down and talk in ZA.

Chris Hart of Investment Solutions:

This is the first GDP decline since 2009.  I think it is fair to say ZA is an a recession.   And its credit rating must be at risk.  It must, from a political point of view, be an absolute priority to get the economy going again.   Effectively, it will need a change in policy direction to generate the investor confidence needed to generate the growth. 

Ian Cruickshanks:

GDP decreased by 0.6% – at the bottom end of expectations.  This confirms that ZA is experiencing a shrinking economy.  If we get another negative quarter like this, we will be in recession.   Mining is a major factor – the sector decreased by almost a quarter- and manufacturing decreased by 4.4%, which is a big negative factor as well. Only the finance and trade sectors are carrying the economy now. Our international credit rating is at risk, threatening a reversal of recent foreign portfolios inflows. We are likely to see foreign traders punish the rand.

Nedbank’s Economic Unit:

As expected, the economy contracted in the first quarter of 2014, with real GDP shrinking by a seasonally adjusted annualized 0.6 % q-o-q, sharply down from growth of 3.8 % in the final quarter of 2013 and worse than market expectations of a quarterly decline of 0.1 %.  Predictably, the weakness mainly came from a sharp plunge in mining production, which was dragged down by the now 18-week long strike at most major platinum mines. But the economy’s fragility was on display in most other sectors, too. Manufacturing output dropped sharply, while the pace of activity in most of the services industries also slowed to the low single digits. The only rays of light came from construction and agriculture, where output rose by an annual rates of 4.9 % and 2.5 % respectively over the quarter.   The outlook for the rest of the year remains clouded by the ongoing strike in the platinum mining industry and the potential spill-over effects of lost wages on confidence and household spending. With the platinum strike claiming both April and May, production is highly unlikely to rebound strongly in the second quarter, while lost wages of over R8bn in the platinum mining industry alone and slower growth in income elsewhere – coupled with rising inflation, high unemployment, elevated debt burdens and higher interest rates – will continue to weigh on domestic spending. Once the strike is resolved, the economy should start to recover, helped by stronger global demand, a weaker rand and increased infrastructure spending by the public sector. Overall, we now expect GDP to grow by a moderate 2 % in 2014 as a whole.  

Investec’s Annabel Bishop:

The real economy shrank in size in the first quarter of this year as work stoppages (both strikes and electricity conntraints) damaged production.  South Africa saw its real economy contract in the quarter following a contraction in the mining sector of 24.7% on a qqsaa (quarter on quarter, seasonally adjusted, annualised) basis. The manufacturing sector also contracted, by 4.4% qqsaa as work stoppages caused by strike action and electricity constraints caused the worst GDP outcome since the 2008/2009 recession.  On a year on year basis the economy saw weak growth of 1.6%, which does not portend well for 2014, particularly as the constraints in the electricity supply have not been resolved and the strike action in the platinum sector is ongoing. The Reserve Bank’s leading indicator for March fell by 2.4% y/y, which implies weakened activity in the second to third quarters compared to the first, although it is only one month’s reading and cannot be fully relied on as a predictor.   Nevertheless, over the past few years South Africa’s economic growth has been deteriorating substantially, and GDP growth is at risk of approaching the 1.0% y/y mark this year after recording 1.9% y/y in 2013, 2.5% y/y in 2012 and 3.6% y/y in 2011. Strike action and reduced supply of electricity has slowed production, while real household consumption expenditure growth has deteriorated on weakened financial health, waning demand, and flagging manufacturing production.  Despite the worrying downward trend in economic growth, and strength of the rand, the SARB has clearly communicated its intention to hike interest rates further in the current cycle, with January’s 50bp hike contributing to the first quarter’s economic weakness. The wholesale, retail, motor trade, accommodation and catering sector recorded weak growth of 2.2% y/y, and is at risk of slowing further should additional interest rate hikes occur this year.  We previously forecast a 50bp interest rate hike in July, but this hike should now be delayed to the fourth quarter of this year instead. The optimal outcome would be no further rise in interest rates in 2014 as inflation is likely to be within target in 2015, and the Reserve Bank cannot influence the 2014 CPI outcome given the time lags involved between changes in interest rates and the impact on inflation. Furthermore, the path of global monetary policy normalisation is sedate and no interest rate hike is required in South Africa in 2014 (or likely 2015) from this source. Regulatory reform, specifically a reduction in red tape and reduced state intervention in, and ownership of, the economy is needed to triple the size of the private business sector. Only through improving the ease of doing business in South Africa, including adding the vital component of flexibility to the labour market, will SA be able to triple the size of the private business sector and sustainably raise economic growth to the 5% mark.



Unemployment and inflation are uncomfortable high, and now we learn the economy is shrinking.     Anyone know the way to Perth?

Some Tweets: 

Steve Stifler (@SteveStfler):  Why are there instructions on my toothpaste? That’s like putting instructions on toilet paper.


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