Cees Bruggemans: Recession, anyone? 

By *Cees Bruggemans

This week I had two star-gazing colleagues within minutes of each other posing the same thoughtful question: are we already in recession without saying it yet?

The next question comes then quickly: can we trust StatsSA & SARB (to tell us early rather than late)?

These are fair questions, with the economy six years into upswing but having lost all semblance of vigour, dithering & stuttering along, firing few cylinders. Everything reduced to low single-digit trajectory at best, and decimals at worst.

Formal job gains in 1Q15 year on year only +0.2%. Can it any slower?

Passenger car sales in May falling at a 5% clip. It gives you the creeps.

Supposedly, a recession isn't something that just happens. You need a jolt of some kind, triggering greater defensiveness in replacement decisions where these offer least cost while offering highest reward in improved risk cover.

So reducing new order levels (drawing down inventories). Temporarily, mind you, until having a better grip on things. Buying fewer consumer durables on credit as the old ones still have some economic life left in them. Simply being cautious. Delaying the new business machine purchase.

These aren't decisions that are easily taken. Something must have happened that triggered them. When they do, the magnitude within GDP is often enough to dip economic activity. Presto, recession.

There is enough shocking stuff going on daily, yet the economy has given the impression of not entirely losing its forward momentum. But all it takes is a quarter of severe data revisions, and the world suddenly appears different in its make-up. The old mascara trick girls know so well, only in reverse….

Domestic car sales are definitely down. But many are fully imported. Our car production now mostly thrives on export, and its output has doubled year on year (from a strike depressed base). Point is, SA car output isn't negative.

Mining, manufacturing, retail, construction, transport, financial services, even government give the impression of still being ahead. Tax receipts appear stable, nominal credit growth certainly remains around 9%.

True, agricultural output is definitely down (drought, off an elevated base, too).

Tourism isn't too hot nowadays, visa-assisted.

Non-residential building activity (offices, shopping space, industrial) appears to have fallen off a cliff since late 2014. But will that really persist? Or are there optical illusions at work here? Talk is of enormous pipeline developments, in places. Can't have smoke without fire, can you? Or is it really all only creative destruction? Displacing old with new?

Business inventories are most easily revised, a nebulous area. Is there a surprise waiting, given poor retail & manufacturing conditions? Or are inventories still stable? Also statistically?

We know government is very slow moving at present, private confidence is really low, and has now been this depressed for years, momentum has been lost in sector after sector, exports seem to be struggling, and real income appears to be under pressure as inflation ratchets up again.

What would it take for the data to turn negative? A further shock, enough to trigger yet greater defensiveness? Or could we actually gradually SLIDE into recession? It would be a new experience for most of us. Hasn't happened here ever, or otherwise long before my time for which there are no time series.

Sleepwalking into recession (two or more consecutive quarters of negative GDP). It is inconceivable. Yet watch out for data revisions confirming our weakness is more real than even now fully acknowledged.

It has happened to Brazil. And they are no worse than us….are they?

Time will tell.

*Cees Bruggemans, consulting economist, Bruggemans & Associates