The Impact of a Technical Recession on South Africa’s Economy

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The Impact of a Technical Recession on South Africa’s Economy. By Grant Sonn.

Economists define technical recessions as: “An economy that experiences two consecutive quarters of negative economic growth as measured by a country’s GDP”

There is generally economic decline during a recession. The purchasing power of consumers comes down due to low salaries or lack of sufficient income. This results in a slowdown in markets with goods and services not being availed of by people. Production slows down thus giving rise to prices.

When the country is in a technical recession, companies tend to immediately consolidate their expenses and start restructuring their biggest cost lines on their balance sheet. People are usually the first to be sacrificed, meaning job cuts.

A technical recession eventually causes depression if it persists for a long time. People who are in the following industries; Manufacturing, construction, wholesale and retail trade, as well as, accommodation are at a higher risk of being affected.

Any type of recession is bad for economic growth and development, especially in South Africa. Investors hesitate to invest, and producers are unable to sell products fast enough. Consumers lack the necessary money due to unemployment and cannot therefore buy goods available in the market.

If we look at South Africa’s headline unemployment rate, it is one of the highest in the world. Something we should be concerned of. The service delivery protests across the country, issues surrounding fees must fall as well as uncertainty on social grant payments all adds pressure to our immediate environments. Aggressive government policies and policy uncertainty doesn’t help our situation either. Especially, when South Africa desperately needs investment for SOE (State Owned Enterprise) bail outs and much needed infrastructure development.

Credit rating decisions from global credit rating agency Moodys’, Fitch Ratings and Standard & Poors, to downgrade some of South Africa’s instruments into sub-investment grade, further confirms a lack of confidence in South Africa’s political leadership.
So the question is, what do we as ordinary South Africans do whilst we hope for better government leadership and policies to attract investment?

The only thing we can do is, to re-consider whether or not this government is the right government to move our economy forward. Then to be brave enough to make the right decision as we go to the voting polls in 2019.

On a more instant practical level, all South Africans must try and hold onto their current jobs and to save and encourage those around them to do the same.

Re-evaluate your monthly expenses and sacrifice where possible. Avoid taking on new risk, like personal loans, holding back on buying a new car or buying a house on credit. The emphasis should be on focusing on debt consolidation and more importantly to save more for when the unexpected happens.

This will enable us all to provide during the periods of unexpected unemployment, which is a real possibility during a technical recession.

Grant Son is a philanthropist and PHD candidate