ECONOMIC WEEK AHEAD: Another recession is on the cards for SA

Economists forecast GDP contraction of 0.2% for the fourth quarter of 2019

The state of the economy will be at the forefront this week, with some economists forecasting that SA may have slid into another recession.

Stats SA is expected to release the GDP print for the fourth quarter of 2019 on Tuesday. A contraction of 0.2%  is the median forecast among 12 economists polled by Bloomberg. The economy, which the Reserve Bank expects to have grown by only 0.4% in 2019, shrunk 0.6% in the third quarter, its second contraction in 2019. The most recent time SA entered a recession was in the second quarter of 2018.

The persistence of load-shedding and the government’s battle to curb its debt and bring in revenue have worsened concern that the local economy could go further in its downward trajectory.

“We expect those sectors that are inextricably linked to load-shedding — such as utilities, manufacturing and even transport via crucial supply chain networks — to underperform,” FNB economists said in a note.

“Based on the high-frequency data from Stats SA, gold mining production on a sequential basis may well prevent the mining sector from being a detractor from economic growth in the quarter. Overall, economic growth remains lacklustre and only structural reform will be able to lift potential growth meaningfully over time.”

Lowered expectations

International bodies, including ratings agency Moody’s Investors Service, have slashed SA’s economic growth forecast for 2020. Moody’s recently lowered its outlook for SA from 1% to 0.7%, citing load-shedding and weak domestic demand as crucial issues. The ratings agency is expected to give a credit ratings review on SA in March, which could cause SA to lose its last remaining investment-grade rating.

The IMF and the World Bank have also lowered their growth expectations for SA to below 1%.

The IMF has warned that the coronavirus outbreak poses a threat to the recovery of the global economy. The number of cases reported worldwide had climbed to more than 85,000 by Sunday.

On the back of a grim domestic economy, conditions in the  manufacturing sector are expected to have declined in February. The estimate among economists polled by Bloomberg is for the Absa manufacturing purchasing managers’ index (PMI) to have declined to 45.1 index points in February from 45.2 in the previous month. This would make it the seventh consecutive decline.

“We expect another contractionary reading in the February release as the sector has been marred by intermittent power outages, weak domestic demand and a potential dampening of export sales amid the coronavirus outbreak,” FNB economists said.

The current account deficit as a percentage of GDP is expected to have narrowed further in the fourth quarter after decreasing to 3.7% in the third quarter.

Vehicle sales for February will also be released this week.

Artice by Business Day