Is South Africa in a slippery slope to a recession? - CNBC Africa

Is South Africa in a slippery slope to a recession?

Southern Africa

by Thabile Manala 0

South Africa is moving towards a recession as the government has run out growth drivers to push the economy forward. PHOTO: Flickr

South Africa is moving towards a recession as the government has run out of growth drivers to push the economy forward.

This was according to Kevin Lings, Chief Economist at Stanlib, who said that government’s credit rating has been downgraded making it significantly hard for the government to embark on anything that could boost the economy.

Lings said that in the government’s aim to conform to fiscal policies, it will have to depend on partnerships with the private sector.

“Corporate balance sheets are in shape but they are not leveraging by investing back into South Africa because corporate confidence is low,” explained Lings.

According to Lings, “Private sector investment [confidence] is in recession, not cash because corporates bank deposits are at record highs.”

What is likely to push South Africa into recession are the projected job cuts because they will directly lead to declined consumption and companies dropping below the profit margins. They will leverage by cutting more jobs resulting in what Lings said would be “an intensified downward spiral”.

South Africa’s BRICS peers are not fending formidably either to the global economic volatility. With Brazil and Russia effectively in recession and China’s dramatic slowdown, “The hype around emerging market has dissipated dramatically. Emerging markets are no longer a compelling story, “ Lings weighed in.

With China’s current devaluation, Lings reckons that the underlying growth in China could be a lot weaker. “This move, while small, is unsettling but there is no policy clarity… China struggles to perform in a policy regulation space.”

China’s currency in global trade currently represents two per cent. Lings said, “They want their currency to be more accepted.”

Lings cited that before the global crisis in 2008, trade was growing at eight per cent and the latest growth rate is less than one per cent. This illustrates that the world is not trading with itself as much as it needs to be. “Countries have been protectionist.”

On comparing how the US is spinning off current events, Lings responded that, “The US is the key engine of growth in world economy- solid, sustainable but not exciting.”

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