Will South Africa avoid recession?

economy
SA economy in first quarter

South Africa faces the possibility of just missing a recession as most economists expect economic growth to marginally rebound after the shock decline in growth in the first quarter.

However, a minority of economists expect the economy to contract further in the second quarter and that means the country could see its second recession, which is two consecutive quarters of negative growth, in the first half of 2019.

Lullu Krugel, a PWC economist, said it was possible South Africa could go into recession as second quarter figures so far “don’t look great”.

“The first quarter could be dismally bad while the second quarter is going to be a tough one,” Krugel said.

However, this week Moody’s Investors Service said in its latest Global Macro Outlook report that the odds that the South African economy could experience a technical recession in 2019 are high, Fin24 reported.

The economy grew by 0.8% in 2018 after a recession in the first half of last year. This week Stats SA announced that the economy had contracted by 3.2% quarter on quarter in the first quarter of 2019 – the biggest decline in 10 years.

Isaac Matshego, a Nedbank economist, said that a recession in the first half of this year was unlikely.

economy
Sectoral performance

This was because there was likely to be a rebound in growth in the second quarter due to fewer blackouts by Eskom and rainfall in key agricultural areas. Matshego said he was expecting growth in the second quarter to improve by 1% to 2% from the first quarter of this year.

London-based Capital Economics said a quick turnaround was unlikely and cut their local growth forecast for 2019 to 0.5%.

The lack of growth was going to have an effect on tax revenue and the government debt as a portion of GDP was set to rise, Krugel said.

Given all these negative factors, Moody’s Investors Service could downgrade South Africa later this year but was likely to wait until after the medium-term budget policy statement in October before doing that, Krugel said.

Matshego said the first quarter numbers meant Nedbank was likely to reduce its growth forecasts for 2019 from 0.7% to 0.6% or even 0.5%.

economy
10 sectors contributing to the SA economy

George Glynos, ETM Analytics managing director and chief economist, said he did not expect South Africa to see a recession in the first half of the year. “I think there will be a marginal improvement in growth in the second quarter,” he said.

Glynos said the long-term decline in the performance of the local economy stretching back 10 years was still intact. The contraction of the economy would likely mean tax revenue would remain under pressure and the budget deficit would expand from 4.5% to 5% of GDP.

“A 5% government budget deficit is shockingly poor,” Glynos said. 


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