South Africa in longest downwa

Image via SA Reserve Bank Facebook

South Africa in longest downward business cycle since 1945, economists report

South Africa’s economy is operating far below its potential.

South Africa in longest downwa

Image via SA Reserve Bank Facebook

South Africa is in its longest downward business cycle since 1945. This is according to leading local economists who cite data provided by the SA Reserve Bank (SARB).

South Africa is facing a dire financial crunch – this is a well-known fact, denoted by the first economic recession since 2009, rising costs of living, growing national debt and an uncomfortably high unemployment rate.

While ordinary South Africans experience the first-hand trauma of this financial downturn, analysts warn that the country’s businesses and commercial entities are facing a malaise last encountered almost 80 years ago.

The report on South Africa’s longest downward business cycle has been compiled by the Centre for Risk Analysis (CRA) at the Institute of Race Relations (IRR) and is supported by leading economist Mike Schüssler, who spoke to Fin24 on the issue.

What does the downward business cycle mean?

According to Ian Cruickshanks, chief economist of the IRR, who cites data provided by SARB, South Africa has been in a downward cycle since December 2013. This is the longest downward phase since the end of the Second World War in 1945.

Cruickshanks explained that in the last 58 months, South Africa’s business cycle had failed to claw its way out of depression, adding that this trend may continue, saying:

“We call it an estimate as we cannot say how long the duration of the downward business cycle will still continue as it is still in progress.

What we wanted to be able to establish [is] the length of this downward business cycle phase to compare it to previous downward phases.

The SARB determines upper (peaks) and lower (troughs) turning points in the business cycle in terms of the growth cycle definition of business cycles and not the classical definition.”

The CRA report quotes SARB’s description of growth cycles as “fluctuations around the long-term growth trend of aggregate economic activity”.

According to analysts, calculating a country’s business cycle growth is about more than measuring gross domestic product (GDP) – a downward business cycle shows that the South African economy is operating well below its potential. This is a cause for great concern.

South Africa facing dire financial times

Why is South Africa’s longest downward business cycle since 1945 a cause for great concern? IRR CEO, Dr Frans Cronjé, sums it up by saying:

“This is extraordinary, since other emerging markets are driving the global economy.

The crisis SA faces is not one of inadequate government spending or insufficient stimulus, but rather one of an economy battered by a decade of hostile policy.”

South Africa, as an emerging market, is effectively in a state of gross stagnation and even recession, meaning that it bucks the global trend which is pointing towards growth among developing economies.

Via the Centre for Risk Analysis (CRA)

Schüssler also described the downward trend as frightening, adding that it wouldn’t be an easy fix for government, explaining:

“It [calculating growth cycles] looks at a host of things, and basically means SA is growing below potential and that it is not something we can easily fix.

When you are down this long, it indicates a structural problem, which cannot just be fixed with interest rates or government spending. We cannot afford this. In downward cycles, not enough jobs are created no matter what government does.

It is quite frightening, because the rest of the world is showing an upward trend, while we are not.”