My Trip To South Africa: Signs Of Recession In 2009
Another research trip to South Africa, and yet another set of indications that the country will be affected badly by the global economic crisis. Back in November 2008, I highlighted how the country would be hit hard by the collapse in demand in its export markets, a concern which now represents the key driver of South Africa’s economic downturn. Here at Business Monitor International, the global team now forecasts that the world will contract by 1.7% this year, followed by only a mild recovery to growth of 2.1% in 2010. Without a doubt, the global downturn will be driven by severe recessions in the US, the European Union and Japan, which all happen to be key South African export markets.
Upon my return to South Africa in mid-February, I got the distinct impression that deteriorating external conditions and ailing domestic demand are presenting severe challenges for South African businesses, regardless of whether they are banks, mining companies or manufacturing firms. Without mentioning any names, several companies have seen their pre-approved budgets being slashed, and some admitted that they weren’t even sure of how to cover their current costs over the coming months.
Against this backdrop, any hopes that South Africa might be able to escape a full-year recession have evaporated, and I think that the country is staring into the face of a 0.3% contraction in 2009. To be sure, thanks to a relatively stable banking sector and a lower private debt burden than western economies, South Africa is unlikely to see the same degrees of economic contraction as will be experienced in the US, Euroland or Asia. Nevertheless, the country has not seen a recession since the Apartheid era, and a sharp downturn in growth is likely to cause significant pain for the country’s poorer social classes.
I should point out that my concerns for South Africa’s economy are not only based on my recent personal experiences, but are also clearly reflected in the latest Q408 real GDP growth data. According to Statistics South Africa, the economy contracted by a massive 1.8% q-o-q in Q408 on a seasonally adjusted and annualised basis. In particular, the 4.8% y-o-y contraction in the manufacturing sector constituted the worst quarterly drop in more than 40 years, underlining the extent of the deterioration in external and domestic demand in late 2008.
In my view, the one thing which will dampen the impact of the recession is the ongoing high levels of private investment in the run-up to the 2010 FIFA World Cup. In fact, I believe that South Africa will remain one of the few major emerging markets in which gross fixed capital formation will remain in positive territory in 2009. Aside from bolstering the negative impact of the recession in 2009, the holding of the football tournament will also be instrumental in leading to a relatively strong economic recovery in 2010, with the event stimulating investment, service export growth, and private consumption.
June 24th, 2009 at 5:09 pm
Your comment is informative, objective and entirely unbiased.
Required reading for anyone needing an honest assessment of the economic outlook for the country