Recession to end this year - OECD
November 20, 2009
By Donwald Pressly
Real gross domestic product (GDP) growth would likely be negative for this year but South Africa would emerge from the recession in the fourth quarter as the global financial downturn eased, the Organisation for Economic Co-operation and Development (OECD) said yesterday.
It raised its forecast for next year's growth from 2.5 percent to 2.7 percent but it said that given the fragile nature of the economy, the planned increase in public spending next year should be implemented.
The club of industrialised nations said that this must be done within a framework of debt sustainability, which implied spending restraint in the economic upswing.
The OECD noted that the downturn and the large budget deficit had also made it "more urgent" to increase the efficiency of public expenditure.
It predicted the economy would contract 2.2 percent this year - slightly more than the 2 percent it predicted in June.
While the first recession in South Africa in 17 years has not been particularly deep, "recovery has been somewhat slow to materialise", Bloomberg reported the OECD as saying.
Output declined in the first half of this year as employment fell and tight constraints on new credit depressed consumption. Private investment also fell sharply and destocking had a negative impact on growth.
Mike Schëssler, the chief executive of Economists.co.za, said the economy would contract by 2.3 percent this year. Schëssler agreed with the OECD's prediction that the country would come out of the recession in the current quarter.
One of the constraining factors to growth was the question of Eskom electricity tariff hikes, which "hangs over the country", he said.
Brian Kantor, an investment strategist at Investec, said he would be happy if the OECD picture was correct, but he did "worry a little" that the economy would not perform that well. There was little indication of a revival in spending by households and firms, and it was unlikely that GDP would recover in the third quarter.
GDP data for the third quarter are expected to be released next week. Economists expect them to show the economy contracted from last year.
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