Risk of recession very high

2014-06-12 00:00

ECONOMISTS seem divided on whether the economy will go into recession, but the one thing they do agree is that the risk of it has never been higher.

What it means for the man in the street is that the pervasive slump in spending, from businesses to consumers, and the weak ability to grow one’s wealth, and find jobs, will persist for some time yet.

The risk of recession was further underlined with the release yesterday of BankservAfrica’s Economic Transaction Index (Beti), which measures electronic fund transfers as an early indicator of economic activity.

The Beti for May dipped below zero after five months of decline.

“Not even two extra working days in May, spending around the election, and the inauguration of the president could prop up the numbers,” said economists.co.za chief economist Mike Schüssler, in a statement.

“Although the possibility of a recession may not be a hard fact as yet, the overall economic transactions are starting to show that all is not well.”

Data released earlier this month showed GDP contracted by 0,6% in the first three months, due mainly to sliding mining production (mostly from the platinum strike) and lower manufacturing activity.

In technical terms, a recession is defined as two quarters of GDP contraction.

One of the main reasons why econo­mists are predicting another quarter of GDP contraction, is that the platinum strike has continued into the second quarter.

The Reserve Bank said in its Monetary Policy Review released last week that economic growth should improve in the second quarter, although it would be modest.

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