5 things you need to know in SA business today and a chart that shows the history of economic meltdowns around the world
1. A gruesome threesome of bad news hit the market yesterday: the US bond yield inverted for the first time since 2007 – which shows that the US is heading for a recession (more about that below). Also, the news that China's industrial output growth shrunk to a 17-year low in July and Germany's economy contracted by 0.1% in the second quarter as exports slumped amid the trade war between the US and China.
Overnight, The Dow Jones Industrial Average dropped 800.49 points – its fourth largest point drop of all time. The S&P 500 and Nasdaq both lost 3%.
The rand is 2% lower than yesterday at R15.41/$, and the JSE – already at its weakest level in six months - looks set for more pain.
2. At least it looks like South Africa avoided a recession in the second quarter: Retails sales in June rose by 2.4% - stronger than economists expected. This is the latest in a series of economic indicators that showed that demand recovered after the loadshedding disaster in the first quarter.
3. The pharmaceutical group Aspen’s share price dropped almost 7% yesterday after the news that it agreed to pay the UK government an £8 million (R150 million) fine after admitting to anticompetitive behaviour. Aspen is now trading at its weakest levels in almost a decade.
4. Gold Fields this morning reported its half-year results: it has made a profit of $71 million, compared to a loss of $367 million a year ago. Yesterday, gold futures reached their highest levels since 2013 amid US recession fears.
5. The embattled Botswanan retailer Choppies is giving up on its dreams to conquer South Africa, and plans to sell its stores here.
A chart that shows the history of economic meltdowns around the world
Reported by Andy Kiersz
The US just got a big recession warning on Wednesday, with yields on longer-term federal debt dropping below yields on shorter-term debt.
That could cause panic for anyone who remembers the last time that happened: right before the Great Recession that began in 2007.
The following years saw massive amounts of economic chaos around the world. Throughout the fall of 2008, Wall Street shook as century-old investment banks were toppled amid a collapse of the overheated US housing market. Hundreds of thousands of jobs were lost every month, and the unemployment rate hit a high of 10% in October 2009.
While a financial crisis and recession as severe as the last one remain unlikely, markets are now warning that economic turbulence could lie ahead.
The spread between 2-year and 10-year Treasury yields fell below zero for the first time since 2007. Normally, interest rates on short-term debt are lower than rates for longer-term debt, as the latter ties up capital for longer and is generally considered more risky and thus demanding of a higher return.
A reversal of that pattern is generally viewed by investors and economists as a bad sign for the economy going forward. Indeed, the yield curve inverted before each of the last seven US recessions.
To put the prospect of a recession in the US in perspective, we took a look at the history of recessions across the world. For our purposes, we used the technical definition of a recession as being two or more consecutive quarters of negative real GDP growth.
The chart below shows the history of technical recessions for each country tracked in the OECD's database of quarterly real GDP growth rates going back to 1960.
The impact of the Great Recession is clear, with most of the countries in the OECD database suffering from prolonged periods of economic contraction in those years. Argentina, which is facing economic headwinds after a surprise primary election result led to a 48% stock market crash on Monday, has been in a technical recession for about 23% of all quarters since the OECD's data for that country began in 1993.
On the flipside, as noted in a similar chart from HSBC in 2017, Australia has avoided a technical recession for nearly three decades. In that time, South Africa experienced nine (relatively short) recessions.
Here's the chart illustrating technical recessions going back to 1960:
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