Recession –(noun) pronunciation [ri-sesh-uhn]

1. two successive quarters of negative growth.
2. a general slowdown in economic activity over a sustained period of time, or a business cycle contraction.

“The chief value of money lies in the fact that one lives in a world in which it is overestimated.”

             - H.L. Mencken

After many months of unconfirmed suspicions and official denials, May 26, 2009 marked the day statistics officially confirmed that South Africa's economy in deed was in recession. According to figures released by Statistics South Africa, the Gross Domestic Product (GDP) -- which is the total value of goods and services produced -- sharply contracted by a staggering 6.4% in the first quarter of 2009. This is much worse than what even the most skeptical analysts had predicted. At worst, the decline was expected to come in at 5%.

This is the first time in 17 years that SA’s economy records negative growth. A weakened global demand for imports has a direct knock-on effect on our exports, which puts the mining and manufacturing industries in a precarious position where they are forced to reduce output. Stats SA revealed that SA’s total mining production for March was down 4.6% year-on-year, while total mining production for the quarter was down 12.8% compared with the quarter ended in December 2008.

Statistics of economic performance in the last quarter of 2008 were a sign of dire things to come as the GDP declined by a disappointing 1.8%. The Reserve Bank further cut its lending rate by 100 basis points down to 7.5% on May 28. SA Reserve Bank has already cut interest rates four times since December – in total 350 basis points – in an effort to keep the recession at bay.

Statistics indicate that collectively for the first quarter of 2009, production in mining and manufacturing contracted by 3.3 percentage points and 1.7 percentage points quarter-on-quarter respectively.

Economists agree that what affects one country, especially a key country, will affect the rest of the world before the recession is over. Even powerful countries like Germany, the UK, China and Japan have all dealt with recessions. The most important thing is having a recovery strategy (a good one), as we’ve witnessed with the impressive plan laid out by US statesman Barack Obama. The question is, how is our government’s vision going to usher us safely through to the other side?

Where to from here? 

On June 3, President Jacob Zuma delivered his first State of the Nation Address since being elected President. Zuma acknowledged the impact the global recession has had on South Africa’s economy but downplayed the extent to which we’re impacted. 

Zuma said government needed to act to minimise the impact of the recession on those most vulnerable. “We have begun to act to reduce job losses. There is an agreement in principle between government and the social partners on the introduction of a training lay-off. Workers who would ordinarily be facing retrenchment due to the economic difficulties, would be kept in employment for a period and reskilled.”

The President announced an ambitious plan to create 500 000 jobs by the end of December, which has received mixed reactions from analysts, opposition parties and the public. To date, 200 000 jobs have been lost and the number is forecast to rise to 300 000 by the end of the year. Zuma also announced measures put in place by the Industrial Development Corporation to fund companies in distress.

Speaking in his first State of the Nation Address since being elected President, Zuma said government needed to act to minimise the impact of the recession on those most vulnerable.

“We have begun to act to reduce job losses. There is an agreement in principle between government and the social partners on the introduction of a training lay-off. Workers who would ordinarily be facing retrenchment due to the economic difficulties, would be kept in employment for a period and reskilled,” said Zuma.

Zuma noted the work done by the Commission for Conciliation, Mediation and Arbitration in saving over 4 000 jobs and providing ongoing advice and support to retrenched workers. He also announced measures put in place by the Industrial Development Corporation to fund companies in distress.

The economy contracted by 6.4% in the first quarter of 2009 and more than 200 000 jobs have been lost. Zuma has already hinted that the recession will affect the pace of delivery.

* By Matona Fatman

* Sources: Mining Weekly; Stats SA; Recession.org