SA Recession likely underway

2014-06-02 15:37

We noted with some puzzlement this weekend that the newly appointed Finance minister did not think we were headed for recession. Of more interest however was his statement that  "a recession requires two consecutive negative quarters of GDP growth"  

This is interesting, because the SA Reserve Bank (SARB) proclaim recession starts and ends for SA and they, like all other central banks worldwide, apply the National Bureau of Economic Research (NBER) methodology in dating official downswings of the business cycle and this method goes way beyond the general two consecutive quarters of declining GDP. In fact, the 1996-1999 SA recession, a grueling 33 months in duration, only encountered a single negative quarterly GDP print!

As we demonstrated in our previous News24.com Voices posting ("SA Recession - here's what you need to know"), and shown by the chart above, two successive declining quarters of GDP has a poor overlap with SARB-defined economic downturns in South Africa. Even if we were to accept the 2-consecutive quarters of negative GDP definition, with April and May behind us, and only June left to rescue the second quarter GDP number, we fail to see how anyone can expect GDP to post a positive print in the 2nd quarter of 2014. Even assuming the mining strike is resolved tomorrow, it would take at least 2-3 months for the mines to retrain staff and retool for production.

Rose-tinted spectacles of the brave, newly-minted Finance minister aside, we have more alarming data out this week that confirms that May 2014 is not going to come galloping to the rescue of the 2nd quarter GDP number.

Firstly new vehicle sales, an excellent barometer of the economy, has remained in negative growth territory for at least 10 months now and is down 9% on May last year. This indicator normally provides a 4-9 month warning of recession (8 months for the last recession) and the warning is now well past its sell-by-date. More worrying (not shown below)  is a 40% plunge in vehicle exports over May last year.

Secondly, a big shock number this week was the Kagiso Purchasing Managers Index™ (PMI™) which fell to a 5-year low of 44.3 index points in May 2014, from 47.4 in April, well into contraction territory. The interesting thing with PMI surveys is they are never revised later on, so we can take this negative print at full face value.

The more data we wait for, the more accurate we can get, but for now our multi-factor recession probability model is pegging the odds of SA recession at an uncomfortable 71%

News24 Voices Terms & Conditions.

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.
NEXT ON NEWS24X

AB praises selfless skipper

2010-11-21 18:15

Inside News24

 
/News
Traffic Alerts

Jobs in Cape Town [change area]

Jobs in Western Cape region

SQL Reporter

Cape Town
Communicate Cape Town IT
R10 000.00 - R12 000.00 Per Month

Reporting Accountant

Cape Town
Network Finance Professional / Prudential
R310 000.00 - R360 000.00 Per Year

HSE Manager

Cape Town
Tumaini Consulting
R550 000.00 - R650 000.00 Per Year

Property [change area]

There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.




Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.