SA Economic Cycle shrinks for 28th consecutive month

2016-05-31 13:26

This article originally appeared on Sharenet VIEWS.

The SA Economic Growth Cycle shrank for a 28th consecutive month since the peak in the business cycle that the  South African Reserve Banks declared a few weeks ago occurred on November 2013. It is not uncommon for central banks to declare these peaks up to 18 months after they occurred and this time was certainly no different, although our representation of the SA Business Cycle Index (BCI) shown below, flagged the peak around 3 months after it actually occurred.

It may not look like it in the above chart, but the decline has been drawn out and shallow. With the average peak-to-trough decline in the BCI index over the last 10 recessions totaling 300 points, there is more downside to 3,900 over the next 6 months before we are likely to see the index bottom out to signal the end of the recession:

The last leg of any decline in the economic cycle is usually a determined down-leg before executing a sharp turnaround, and we are yet to witness this, implying some more pain is to come for the economy and of course the SA public, profits, jobs etc.

For the last few years the IMF and SA Reserve bank have been downgrading their SA GDP forecasts consistently, with the continuous downward revisions to the upcoming GDP for the first quarter of 2016 no exception. The latest downgrade for 1Q2016 a few days back is from 0.6% to 0.4% growth but to be honest, we will be very surprised if it is not of the order of 0.2% or even negative when it is announced.

Looking at SA GDP growth over the last 10 years, it doesn’t take too much imagination to see the constants downward trend of the SA economy

SA has paid the price for its continued economic mismanagement , and incredibly, in the space of less than 8 years we have moved from the continent’s largest to its third largest economy having recently been overtaken by Egypt:

During the past three years the Sub-Saharan economy has grown by an average of 4.5% compared with South Africa’s growth of only 1.3% in 2015. To make matters worse, SA is only projected to grow 0.4% in 2016.

For the last 70 years the South African Reserve Bank has shouldered the responsibility for estimating expenditure on GDP. That task has now shifted to Stats SA which includes a more comprehensive approach of using production and expenditure together. This new measurement method showed that GDP growth in 2015 was actually worse than we expected. Real GDP growth in the 2nd quarter was revised down from -1.3% to -2% and the 3rd quarter was revised down from 0.7% to 0.3%. The fourth quarter of 2015 was revised down from 0,6% to 0,4%.

Where have we felt the pain the most so far in this rather shallow drawn-out decline? The Rand and Jobs. Particularly jobs. In fact, we are in a full-blown jobs crises:

We will be in Sandton on Saturday 4th June and Cape Town on 11th June, to talk further with people on the impact of an economic recession on the stock market, the 12 signs to look out for that will warn you of a stock market crash and the inevitable decline of the Rand to over R20 to the dollar, and more specifically what mechanisms can be deployed to protect your Rand-based assets in these situations. You can book over here

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