Barely months after rating agency downgraded the economy, the SA economy is said to have officially entered into recession.
Statistics South Africa broke the news about the current state of the country’s economy, saying that the economy contracted by 0.7% in the first three months of the year after shrinking by 0.3% in the fourth quarter of last year.
Although the news about SA recession might not be surprising to most economists, it is disturbing as this would be the first time in eight years and the second under President Jacob Zuma’s administration.
What then is an economic recession? It is a decline in gross domestic product (GDP) for two or more consecutive quarters.
A country is said to be in recession when it experiences a period of general economic decline and is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market.
Generally, a recession is less severe than a depression and the federal leadership of a country – either the president himself, the head of the Federal Reserve, or the entire administration- is usually blamed for the economic fall.
But for South Africa, statistic SA stated that the main contributor to this was the contraction of the trade, catering and accommodation industry by 5.9 percent over the period.
Statistics South Africa Deputy Director General Joe de Beer also noted that the major industries that contracted in the economy were “the trade and manufacturing sectors.”
Gross domestic product rose 1.0% on an unadjusted year-on-year basis in the first quarter, compared with 0.7% contraction in the previous three months, the agency said.
Moreso, seven out of ten divisions reported negative growth rates in the first quarter but the largest contributor to the economic recession was the petroleum, chemical products, rubber and plastic products division.
How Recession Affect A Country
According to explanations on how economic repression affects the country, economists say large and small businesses are affected will be highly affected as production slows down.
The country will also sink into loss of jobs, a decline in real income, a slowdown in industrial production and manufacturing and a slump in consumer spending. Things generally get more difficult and firms publicly traded on major stock exchanges could ultimately be hurt.
It could be recalled that last week, Statistics South Africa announced that unemployment in the country n the first quarter of 2017 increased by 1.2 of a percentage point to 27.7% – the highest figure since September 2003.
Pali Lehohla, statistician-general of Statistics South Africa, who released the unemployment statistics stated early this year, that the growth in employment was offset by the increase in the number of job seekers who entered the market in the beginning of the year.
Stanlib chief economist Kevin Lings admitted this fact, saying that the SA economy has not managed to gain momentum and has not been robust enough to lead to widespread job creation in the private sector since the global financial market crisis in 2009
“This is despite government debt almost doubling since 2009. There has to now be a real risk that South African tax revenue collection under-performs even more, putting the fiscal authorities under significant pressure.”
“SA will continue to face the risk of further credit rating downgrades unless there is a concerted and coordinated effort by policy officials to help lift domestic economic activity, starting with business confidence,” says Lings.
The rand extended its losses against the dollar to more than 1% to a session low of 12.8525/dollar. Government bonds also weakened.
How SA Recession Will Affect SA Families
As it is known, during the recession, economic hardship will go off limit as it affects the livelihood of everybody in one way or the other- and this naturally forces people to work harder and more effective to tackle the new economic realities.
One of the key indicators of the declining economy is household spending, which showed a major decline in the first quarter.
Hence, the newly announced SA recession could affect Families in the following ways:
Job loss: Unemployment is usually high during the recession as company owners and employers try to cut overhead cost by reducing the number of its employees. This could as well trigger other unintended consequences like depression and alcoholism that may have a serious effect on wellbeing.
More work will have to be done by fewer people. Productivity per employee may increase, but morale may suffer as hours become longer, work becomes harder, wage increases are stopped and fear of further layoffs persists.
Loss of Opportunities: Due to poor funding, many small scale businesses usually fold up during this period. Business owners may lose willingness to take advantage of emerging opportunities during the recession, which may stunt business growth significantly.
Lower Educational Financing: To finance children education usually becomes tougher during the SA recession as schools would adjust tuition fees upwards due to high operating cost, parents with three or four children in high schools and universities are at the cross-roads at the moment.
Increased Family Crisis Leading to Break-ups: Adjusting to a low source of income may prove difficult for families as they had to meet basic family needs and obligations. This could cause frictions among families, which may lead to break-ups in relationships. For instance, families will have to sell houses and change children’s schools to public schools as a way to cope with the recession.
Change in Family Budget: Families will have to adjust or end their budgets as most families may not accommodate short and long-term non-residential investments during a recession.
Families may also be tempted to invest money because of the reduced expense of stocks, but without any expendable income, investing may not be feasible. This can have devastating effects on retirement accounts and savings accounts. It may also become necessary to tap into investments and retirement funds for cash.
The effects of a recession on families last a lot longer than the duration of a recession. Almost every South African will suffer the harsh effect pf the recession.
However, families can survive by adapting to a new lifestyle, working together, and making changes to improve their future.
As South Africans brace up for the new economic standard, it is important to note that like in many other countries that experienced recession, SA recession has not come to stay forever, though some recessions can be more severe and last longer than others, history shows that recessions invariably end, and when they do, an economic recovery follows.