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It is official, South Africa is in recession

South Africa is now in a recession due to second quarter GDP having dropped 0.7% according to Stats SA.

The biggest culprit was agriculture, forestry and fishing which dropped 29.2%, and contributed negative 0.8 of a percentage point to GDP growth.

The best performing part of the economy was mining and quarrying which rose by 4.9% and contributed a 0.4 percentage point to GDP growth.

A technical recession is when you get two quarters in a row where gross domestic product (GDP) shrinks.

In June Stats SA announced that our GDP had contracted by 2.2%.

My Take

A recession right now is very bad news for Cyril Ramaphosa.

The global economy is currently pretty strong. America’s economy has been growing steadily, and their corporations are making big profits.

What this means is that you can’t really blame the world market for South African under-performance.

Even the weakness in our currency should mean growth because it makes it cheaper to produce goods right here. There are no excuses, this is down to the ANC government and its polices. I could harp on about land redistribution, Eskom, the ratings downgrades we suffered due to Jacob Zuma etc… but it all comes down to the ANC.

Worse going forward, it looks like this current prosperous period is a bubble, at least according to Robert Reich, Chancellor’s Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies.

…most Americans are still living in the shadow of the Great Recession. More have jobs, to be sure. But they haven’t seen any rise in their wages, adjusted for inflation.

Many are worse off due to the escalating costs of housing, healthcare, and education. And the value of whatever assets they own is less than in 2007.

Last year, about 40 percent of American families struggled to meet at least one basic need – food, health care, housing or utilities, according to an Urban Institute survey. 

The situation looks eerily close to what happened with the great recession of 2008, and the great depression of 1929.

America’s economy is consumer-led, and it requires citizens to buy goods in order to keep going. The trouble is, if they’re struggling to make ends meet, if they don’t have the money to push the economy, they go into debt – which they eventually cannot afford to pay so the whole thing collapses.

When America’s economy falls, so does everyone else’s.

Right now in South Africa we’re in a delicate situation, can we afford another global crash?

Why should Ramaphosa be worried though? Because a failing economy often presages a change in government.

Jacob Zuma didn’t fall due to corruption. The allegations against him had been there for years, a lot of them went back further than his presidency, he fell because the consequences of his corruption were being felt in the economy.

Ramaphosa does not want to be the president who cost the ANC its status as ruling party, yet if the economy does not improve, that may well be what happens.

Picture of rand notes courtesy of KarelienKriel on Pixabay.

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