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Bloemfontein - It was Warren Buffett who said that when the
tide goes out, you’ll find out who is not wearing a bathing suit.
The tide is currently turning for the South African economy.
Although it’s still too soon to speak of another recession, we are certainly
more defenceless than three years ago, at the time of the last recession.
This is the disturbing news coming from the August Sake24 and BoE Private Clients provincial barometers.
This unique index measures the economic performance of five
provinces and shows that their economies contracted by an average 4.3% in the
past quarter.
The biggest loser was the Eastern Cape, where the overall
index tumbled 6.8%, followed by Gauteng (4.5% down).
“The provincial barometer levels are the lowest since
December last year and clearly show that South Africa is currently experiencing
a contraction, aggravated by rising prices and inflationary pressure,” said
Mike Schüssler of Economists.co.za, who compiled the barometers.
Earlier this week Finance Minister Pravin Gordhan
acknowledged that the growth forecast in his budget speech earlier this year
might have been overly ambitious, in the context of current global financial
problems. He predicted 4% growth over the next three years.
Schüssler pointed out that international uncertainty is
suppressing demand for South Africa's biggest export product - its resources.
“We now have a situation where both the value of the rand
and resource prices are on the decline, meaning that two of the buffers
protecting us from the effects of the previous recession have gone.”
The manufacturing sector has not yet recovered to where it was before the previous recession, and in the past quarter manufacturing
indices again dropped in all five provinces, with Gauteng (4.3% down) in the
lead.
This decline has a direct effect on job opportunities. Statistics South Africa quarterly employment figures show that hiring in the formal manufacturing sector contracted by about 8 000 posts in the past quarter.
It's in the Eastern Cape in particular - where the economic
contraction has persisted for five months - that the threat of a second
recession is the greatest. The province's construction index has been falling
for eight successive months, and in August was 31% down on a year ago.
The Western Cape economy is currently doing better than the rest of the country, but in the past quarter it contracted across a broader
base - including in the agricultural industry which declined 6% year-on-year.
"This decline in the agricultural index is reflected across
the country and is concerning for the growth forecasts of provinces like the Free
State, which depends strongly on its agricultural sector."
Countrywide the provinces' stress indices, which measure
negative factors like inflation and unemployment, have also begun to rise, with
that of the Eastern Cape (4% up) the worst affected.
"It’s the poorest parts of the country that are most
affected. High food inflation, more expensive electricity and the possibility
of further retrenchments are causing concern about their ability to absorb
further economic shocks."
Visit www.fin24.com/barometer for a comprehensive breakdown
of the barometers.
