Another recession looming, warns BUSA, as it slams govt for 'lip service' | Fin24

Another recession looming, warns BUSA, as it slams govt for 'lip service'

Dec 04 2019 15:15
Lameez Omarjee

Government must keep its promise to "create a sound and stable business environment" and stop paying "lip service", Business Unity South Africa has said.

The business body - which is the country's largest federation of business organisations in terms of GDP and employment contribution - on Tuesday issued statement on the latest GDP figures. Stats SA on Tuesday released GDP data for the third quarter of the year, which showed the economy contracted by 0.6%. This is the second time this year the economy contracted, Fin24 previously reported.

Stats SA indicated that the poor performances of the mining industry, manufacturing and transport and communications sectors were the biggest negative contributors to GDP growth.

"Another recession is looming for the country. Very little has happened between the end of September and now to change the trajectory of the economy," BUSA said in its statement.

BUSA warned that the combination of the contracting economy, weak business environment, persistent high levels of unemployment would mean constrained tax revenue, placing more pressure on the fiscus.

"A further credit rating downgrade, by investor services agency Moody's, seems inevitable under the present circumstances, which will further damage South Africa's standing as an investment destination," BUSA said.

The organisation further accused government of "lip service" regarding its promises of working together with business, which it claimed was not the case.

"South Africa needs the rapid implementation of the pragmatic policies set out in the National Treasury's economic growth strategy to build business and consumer confidence needed to avert another recession," BUSA said.

Deputy Finance Minister David Masondo, in an address earlier in the week, had similarly said it was necessary to implement government's economic growth strategy as a matter of urgency, noting the upcoming Budget 2020 and the importance of avoiding a sovereign credit rating downgrade. 

Earlier this week Absa released its purchasing manager's index – a measure of business activity by the private sector – showed that business activity deteriorated for the month of November. The figure slipped to 47.7 points.

Similarly, the PMI by IHS Markit also declined, from 49.4 points recorded in October to 48.6 points for November.

Figures above the 50-neutral mark reflect an improvement, while a figure below the 50-neutral mark signals a deterioration.

According to IHS Markit economist David Owen, the 48.6 reading for November is the second-lowest reading in 12 months.

"Most notably, firms cut output at the quickest rate in a year, despite demand slowing only marginally. As a result, both employment and input stocks decreased, with companies signaling little expectation of an immediate boost to the domestic economy," he said.

Sentiment for the coming 12 months is positive, the index showed. "With a number of issues facing the country, firms generally placed their optimism upon company-led investment rather than stronger national growth," Owen said.

busa  |  recession  |  gdp  |  economic growth  |  sa economy


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