SA should prepare for recession in 2016

South Africa is not out of the recession woods just yet, economist Mike Schussler warned on Tuesday.

South Africa just escaped being in a recession in 2015, with the third quarter growth of 0.7%, Statistics SA announced on Tuesday.

However, the drought, low commodity prices and visa restrictions could shift the country into a recession by early next year, said Schussler, director of economists.co.za.

“We got away without a recession this time around as the second quarter did have a decline (-1.3%) in the size of our economy and another (negative growth) quarter would have technically put us into a recession,” he said.

Schussler said the “silly visa restrictions that keep tourists away (from SA)” are also to blame, because “we should have had a double digit increase due to the weak rand”.

He warned that growth remains weak and will unlikely improve. “Many people are facing uncertainty in their jobs at present  and we're seeing a slowdown in investment spending,” he said.

Low oil prices saved recession

“If it was not for the much lower oil price, we would have been in a recession already,” he said, adding that some food prices that are lower internationally have kept the consumer “alive”.

Mining (-9.8%), electricity (-8%) and agriculture (-12.6%)  are in recession, while manufacturing (6.2%) just got out of recession. “Overall many parts of the economy are very weak,” he said.

With estimates of a 1.7% population growth rate (mid-year population estimates show 55 million people in SA) and the economy growing at 1% over the last year, the average person is -0.7% poorer at present, explained Schussler.

“So for the average person...  it is a recession and feels like a recession because we are worse off than we were before,” he said.

Primary sector in a recession

The primary sector of the economy has already entered a technical recession (two consecutive quarters of negative growth), declining by 10% q/q in the third quarter following a 9.5% q/q contraction in the second quarter, said MMI chief economist Sanisha Packirisamy.

“Drought conditions and further pressure on commodities are likely to further damage growth rates in the primary sector (agriculture and mining) of the economy in upcoming quarters,” she said.

"However, we expect this to be offset by mildly positive growth in the more defensive (less cyclical) tertiary/services sectors leading to an overall pedestrian outlook for economic growth over 2016."

- Source: Fin24