‘Intervention needed now to prevent technical recession’

Henry

Economists believe urgent intervention is necessary to prevent a technical recession in the country.

“The decline in the third quarter’s GDP growth to -0.2% from 0.5% in the second quarter was worse than expected, with negative factors clearly overshadowing the positive to an extent that was not foreseen in the period not,” says prof. Raymond Parsons, economist from the North-West University’s business school.

This follows Statistics South Africa’s (StatsSA) announcement of the quarterly figures on South Africa’s gross domestic product (GDP) in the third quarter of 2023.

“Although there was a temporary improvement in energy availability in the quarter, several other key high-frequency indices have already warned of a loss of economic momentum. Five of the ten sectors in the economy showed a decline in GDP growth in the third quarter.”

Parsons believes that similar economic trends are probably also applicable to determine a likely weak GDP growth outcome in the current fourth quarter of the year.

“The decrease in fixed capital formation in the third quarter is also a warning. The year is likely to end with subdued economic activity. The country must now prevent the possibility of a ‘technical recession’ (two consecutive quarters of negative growth) against the weak economic background of the third quarter of 2023.”

Apart from other global and local headwinds, growth expectations in South Africa remain largely dependent on, in particular, the gradual phasing out of load shedding, and a higher level of energy security that must be achieved than is currently the case. In addition, there are now also bottlenecks in Transnet’s rail and port services which impose wide disruption and heavy additional costs on the economy.

“These mounting infrastructural setbacks require urgent remediation – such as the recent Transnet loan guarantee by the national treasury – to be successfully implemented to maintain the country’s growth performance next year. The latest GDP growth figures add new urgency to the policy and project actions needed to support economic growth.”

Abigail Moyo, spokesperson for the union Uasa, says the union is also very concerned about the current economic situation of the country, given the already massive unemployment.

“A trend where eight out of ten manufacturing sectors report negative growth is unacceptable,” says Moyo. According to StatsSA, leading industries, including agriculture, forestry and fisheries, manufacturing and construction, all reported a decline in the third quarter.

“It was a difficult year for many citizens in a country where the unemployment rate remains unacceptably high and inflation and interest rates continue to rise. We can never normalize poverty or accept the reality of unemployment. To just sit around and keep waiting for the government for solutions will only make things worse.”

Moyo says the country can only continue to dream of economic recovery until a real action plan is introduced to reverse the high unemployment rate and solve the power crisis.