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SA awaits 'bad' economy news

By unknown | May 25, 2009 | COMMENTS [ 0 ]

Lihle Z Mtshali

Lihle Z Mtshali


THE argument of whether South Africa is officially in recession or not will be laid to rest this week when Statistics SA releases the first quarter gross domestic product growth figures tomorrow.

The technical definition of a recession is two consecutive quarters of negative growth.

The economy slowed by a greater-than-expected 1,8percent in the fourth quarter of last year - the first such quarterly decline for the economy in more than a decade - after 40 consecutive quarters of positive growth since 1998.

The range of forecasts for the upcoming data is heavily weighted in the negative, with the debate among economists being how wide the contraction will be.

Forecasts range from -0,7percent to a sharp -5,2percent.

Some of the sectoral breakdowns make for stark reading, with the mining decline penned in at about -42percent and manufacturing around -25percent.

Mike Schussler of Economists.co.za said things are looking so bad that it may be the first time since the late 1800s that the agriculture sector is bigger than mining.

The agriculture sector is seen rising in low double digits in the quarter from 16,7percent in the fourth quarter, with construction, finance, transport and government services making small headway in single digits.

All of the trades are seen down.

The shock headlines that can be expected ushering in news of the recession are also expected by economists to usher in a 100 basis point repo rate cut to 7,5percent on Thursday.

The Reserve Bank's monetary policy committee (MPC) meets on Wednesday and will announce its interest rate decision the next day.

The gross domestic product figures are among a battery of data that Stats SA will release this week that will be instrumental in how members of the MPC vote on interest rates.

On Wednesday inflation data for April will be released and April's factory gate inflation figures on Thursday.

Standard Bank economists Shireen Darmalingam and Danelee van Dyk said in a research note on Friday: "While the [gross domestic product] data are expected to be decidedly bleak, we are faced with a policy dilemma with respect to stubborn consumer inflation.

"This may take the edge off the Bank's position on the widening output gap, which has been one of the core reasons behind three consecutive interest rate cuts." - With I-Net Bridge


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