Is South Africa Heading for Another Recession?

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Is South Africa Heading for Another Recession?

Recession graph SA econony January 2016

Records of rainfall began in the year 1904 and, since that time, they have never showed a drought as bad as the one we are currently experiencing.  Soaring temperatures and decreased rainfall have meant that maize production has decreased by a staggering 30%, which has pushed up food prices.  Conditions such as these make economists very nervous, and the dreaded ‘R’ word has been thrown around of late.  Is South Africa headed for another recession?

With the British Pound soaring to well over R20, the South African economy is not looking promising.  However, the exchange rate cannot be blamed solely on diminishing maize production.  This is because agriculture on makes up only 2.2 percent of our country’s GDP.  However, the concern is that this factor might trigger a ‘domino effect’, which will push up the prices of South Africa’s exports as it places financial pressure on average local families.

The National Agricultural Marketing Council’s head of food price monitoring is expecting a dramatic increase in food prices this year.  General food prices are expected to rise by around 15 or 20 percent.  This doesn’t bode well for South Africa given that the major cause of recession is, of course, inflation.

Can South Africa Avoid a Recession?

Inflation triggers a decline in economic activity, which South Africa is likely to experience as a result of the predicted food price hike.  However, Pravin Gordhan, our finance minister, does not fear the worst.  He admits that the production level of various sectors does create cause for concern, but believes that South African avoid slipping into another recession.

Currently, the World Bank estimates that South Africa’s economy is set to climb, growing by around 1.2 to 1.6 percent this year.  The finance department’s estimates have not yet been tabled, but could well match this estimate.

However, Gordhan feels that this amount of growth can be increased through the cooperation of the government with the private sector.  The finance minister has stated that 70 percent of the economy is controlled by private companies.  He feels that, if these companies can be persuaded to invest, the growth of our economy can be pushed higher than current predictions.

Getting private companies to invest might have to involve incentives, according to the finance minister.  The goal is essentially the creation of confidence in the country.

The specifics of the plan have not yet been disclosed, but there is a plan in place.  Gordhan has revealed that the government has been working with business and labour.  But, until we know the solution to the current financial situation, we will have to take comfort in the fact that our economy is on the rise and thus not heading towards a recession.

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