R is for recession

We are privileged on this blog to have a resident financial whiz in V.I. Ph.D who has been remarkably accurate in his summations on the state of the South African economy, the local currency and events on Wall Street. As he correctly pointed out, how dumb does the government and banks think we are? Fortunately, as we bloggers are wont to do, unlike the mainstream media with their timid merda taurorum animas conturbit (bullshit baffles brain) approach, we believe in laying the facts down for you to pick up if you like. It is cruel to raise expectations when the role of the experts and politicians should be to brace their readers /electorate for the possibility of long unemployment and dire times ahead.

In Australia for instance, unlike SA, the PM regularly appears on TV visibly anxious at the scale of job losses and slowdown in the economy. No talk of bravado there. The people are hurting and to dismiss the pain being felt by tens of thousands of newly unemployed with some hip-hip-hooray platitudes would show a callous disregard for the suffering of those people.

No such qualms in South Africa though. We are seeing thousands upon thousands of people losing their jobs and still government keeps putting on a false face. South Africa unlike Australia has been badly mismanaged for 15 years, the truth extent of which will be revealed this year as revenue will be down and South Africa will go into deficit and a deeper recession than we have been told.

We need a Finance Minister to fess up to the fact that we will be hit hard when the financial tsunami finally arrives at our shores. The article below implies we are already over the halfway mark - which is not true. America and Europe have been in the doldrums for about a year and the real impact of their downturn is only just arriving at the front door of the rest of the world. China for instance is only now feeling the impact.

Here's how it is folks: it is going to be fu*king bad unlike any recession most people alive have ever experienced. This is no normal boom-bust scenario. It is more serious than that and why it is no coincidence that governments around the world have bailed out major banks and industries - an act that is unprecedented. They grasp the magnitude of what is transpiring, surely that should act as a clue.

Forget what the bank 'experts' and politicians tell you. You need to buckle down and curtail unnecessary spending. Save money and do everything in your power to hold on to your job. Trust your instincts.

UPDATE: Africa Hit Hard by Financial Crisis, Says New Report - A new report says Africa will suffer a huge drop in income due to the global financial crisis. The ActionAid report – called Where Does It Hurt? – says the worst affected countries may see a decline in income of up to 50 percent.

When third-quarter gross domestic product figures for 2008 are revised later this year, it is likely that they will be adjusted downwards from the reported 0.2% to show negative growth.

This, coupled with fourth-­quarter GDP, which came in at -1.8%, will show that the economy is in recession, defined as two consecutive quarters of negative growth.

Mike Schussler of economists.co.za says there are signs that the domestic economy is shrinking. These include declining car sales for 23 months; the latest cement sales, which are down 18% year on year; falling electricity sales; 11% fewer ­passengers arriving at OR Tambo airport; and a 27% reduction in building plans passed.

Schussler says the latest figures from the National Credit Regulator show that 43 000 households are four months behind with their mortgage payments while 15 000 are three months behind.

He says the Reserve Bank's leading indicator of economic activity was "never this negative" and predicts that the South African economy will shrink this year by 0.5%. (that's optimistic)

The latest RMB/BER figures, released this week, show that business confidence is at its lowest level in 10 years, implying "that only a quarter of respondents rate prevailing business conditions as satisfactory".

RMB/BER says the decline foreshadows more grim results. "Economic growth is likely to contract further during this quarter and will be dismal for the year as a whole [if not slightly negative]. "It could take up to 12 months before easier monetary policy starts to markedly buoy fixed investment and interest rate-sensitive sectors [such as durable goods and building]."

But the news is not all bad, at least on a relative basis. RMB/BER says business confidence has not declined to the same low level as in other countries and "is still well above the previous South African lows of 1978, 1986, 1993 and 1999".

Schussler says recessions are part of the normal business cycle. He says while these are difficult times, the South African economy may well already be halfway through the current recession. "The World Cup will be a factor in our favour in helping us, as will government spending programmes."

Schussler says the South African economy may bounce back sooner and stronger than most people think. (we 'bounce' back when the US and our major trading partners 'bounce' back, not sooner than them)

Internationally things are dire with the International Monetary Fund predicting this week that world growth will be negative for the first time since World War II.

All major institutions such as the International Labour Organisation and the Organisation for Economic Cooperation and Development are saying the same thing, says Schussler, "talking the economy down".

An international survey of hiring intentions released in Johannesburg this week shows that employers in 13 of 33 countries expect some positive hiring activity in the coming quarter. South Africa is one of these 13 countries.

"Although the net employment outlook for South Africa has improved by one percentage point to +14%, according to the latest data, it still represents among the weakest hiring intentions by employers since the survey began in South Africa in the fourth quarter of 2006, say the authors of the Manpower Employment Outlook survey.

Schussler says South Africa will not escape the effects of the global recession, but we may emerge quicker than others. (ditto above)

There is, nonetheless, he says, room for greater action in lowering interest rates and extending both the period and amount that unemployed people can claim in benefits. (two points I totally agree with)