Economists at global bank HSBC have sent a note to clients this week warning that they expect the South African economy to have contracted in the second quarter. It’s expecting a marginal decline of just 0.1% on top of the first quarter's 2.2% contraction. Still, two quarters of contraction would mean South Africa was in a technical recession.
“We now think data released on 4 September will show that South Africa contracted by 0.1% q-on-q in Q2 2018, tipping the economy into recession,” write economists David Faulkner and Thato Mosadi at HSBC Securities.
The HSBC analysis reflects the worrying tone of a statement from Moody’s, the only global ratings agency that still maintains an investment grade on South Africa, that the country is not moving fast enough to cut the cost of a bloated civil service and its attempts at fiscal consolidation are just too slow. After days of sharp currency depreciation amidst fears of currency contagion from the Turkish lira crisis, the rand retreated sharply on concerns for the South African economy.
Amidst the recent announcements of impending job cuts at Goldfields and Impala Platinum, HSBC warns mining, despite some optimistic one-month figures showing expansion in June of just over 2%, will contract over the quarter along with manufacturing and electricity output.
If South Africa does see contraction in the second quarter, it will put the economy into its second recession in 18 months and ninth since the oil crisis of the early 70's. South Africa endured two recessions in quick succession in the early 90’s amidst deep concern about the shape the economy would take once the ANC came to power. The party’s commitment to openness and a free market economy led to a period of expansion not seen since the 1960’s and the economy grew uninterrupted between 1994 and the global financial crisis in 2009. If HSBC is right, this would be the third recession post the financial crisis at a time when the rest of the world has been seeing stellar growth.
If we are completely honest with ourselves, South Africa has felt like its been in a recession this year, regardless of what the data shows. When we believe that the economy is tight we are less likely to spend, and to defer consumption as this week's retail sales figures for June suggested is the case. It’s almost a self-fulfilling prophecy.
While considerable progress has been made in recent months in the long overdue clean-up in SOEs with new boards and in some cases new management teams being appointed, South Africa continues to score serious own goals. This week saw the Mineral Resources Minister Gwede Mantashe, speaking in his capacity as ANC chairperson, apparently break ranks with the president on land.
Cyril Ramaphosa has always emphasised that land restitution will not come at the expense of food security. Mantashe’s assertion that farmers should be restricted to 12,000 hectares of land undermines that point. Since 1994, only a quarter of the commercial farmers have survived, some 35,000. Farming has consolidated with fewer and fewer agriculturalists being responsible for more and more food production. It’s not unusual for farmers nowadays to be cultivating in excess of 20 000 hectares, using less labour and equipment than ever before, to produce growing quantities of food. Land policy is confusing enough as it is, and Mantashe just muddied the waters even further.
Still, despite the noise and the rhetoric, even some traditionally bearish economists are beginning to see signs that things are turning.
The post Zuma-period of Ramaphoria is well and truly over as Rama-reality has set in. The building blocks for a recovery are being put in place. It’s just going to be a very noisy recovery.
Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster.