By: Sisanda Ngongoma
Port Elizabeth – On the 4th of September Stats SA released the findings of the economic activity for the second quarter of 2018, and while it looks like the decline is not as weak as the first quarter, the two consecutive quarters of negative growth have plunged South Africa into a recession.
According to Stats SA, South Africa’s gross domestic product (GDP) fell by 0.7% in the second quarter of 2018. Less growth generally creates a domino effect which results in an increase in unemployment due to a drop in consumer spending that affects businesses and the economy.
Dr Clement Mosa and Ms Kholisi of the Nelson Mandela University Economics department stated that the recession will impact foreign direct investment, as well as the portfolio investment because the rand has been volatile. They also said that the only way to monitor it was to increase productivity.
South Africa is suffering as a result of trade relations with other countries, because it does not control prices to the large extent. Consumers are not spending much on goods and services, therefore the recession might make it worse because of the increased financial pressure on consumers. This could result in citizens losing their jobs and some firms could be forced to cut down. Dr Mosa said, “It is a bit of a challenge for the government to act, especially the reserve bank. If they want to boost the economy they might increase the interest rate and money supply making this worse because inflation will take place’’.
Describing the situation, Dr Clement said that the recession would negatively affect foreign investments and attracting foreign investment would be difficult, leading many to believe that government should work harder on maintaining political stability, domestic economy and keeping inflation constrained. Dr Mosa continued by saying that there should not be an increase in inflation when the GDP is low. Ms Kholisi also added, “The government cannot control droughts because it is a natural phenomena, however, measures should be put in the budget for an emergency like that. South Africans should also work on climate developing entities.”
The only thing [that] the government can try to control and focus on is the land issue, since it could cause a lot of problems in the economy in terms of foreign investors. Ms Kolisi said that the government should be careful when making decisions such as introducing its policy if there is uncertainty towards issues of nationalisation of government excitation like the Reserve Bank that could also affect the economy.
Ms Kolisi also mentioned that the Government should use its policies and monetary policy control carefully, because this economic climate and political instability causing the rand to be volatile, could utilize government expenditure in order to boost the GDP. “Government spending is very important in activities that will influence economic growth and adding to the domestic economy by boosting savings in investments level, so that we do not rely too much on foreign capital”, she added.
Dr Mosa said in closing that the government could also focus on other sectors that were performing well, since exports actually increased and contributed to the GDP in the second quarter positively.