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This is not a recession

February 27, 2009

This is applicable to South Africa,the original post can be viewed here..

We are not in a recession.

‘In economics, the term recession generally describes the reduction of a country’s gross domestic product (GDP) for at least two quarters’.

We are not in a recession.

The problem with a word like recession is that it is big and scary. It sells copy. Bad news is good news. Trevor Manuel the Minister of Finance is telling all who will listen.

We are not in recession.

In socio-nomics peoples mental outlook creates many of the flows in an economy. Too much of the big R and people start acting like they are in a recession and the negative feedback loop starts.

You get scared because we are in a recession so you order less stock thinking that you won’t sell enough. The buyer thinks that they are in a recession and doesn’t spend expecting to get laid off. This creates a negative feedback loop which will cool the entire economy as the recession sentiment pervades it.

Let me repeat what Trevor has said repeatedly.

We are not in a recession.

Here is what some of the financial news outlets had to say about the whole sorry story.

The Mail and Guardian posed the question to Trevor Manuel ‘are we in a recession?’ and his succinct reply ‘No, we’re not’.

The thing is the economy can be talked into a recession but as Manuel put it there was ‘an argument that if it walks like a duck and quacks like a duck, it probably is a duck, it probably is a recession, but in technical terms, we’re not in a recession’.

Hayibo however came up with their own plan to rescue the economy ‘SA to avoid recession by exporting narcotics on SAA’. It may be a joke but exports will be key for us to stay out of a recession.

Exports are subject to changes in the interest rate. There has been a loud clamouring for an early interest rate cut to stimulate the economy and lift it out of ‘recession’.

Tito Mboweni the Reserve Bank governor has been hinting at it but it does not look as if it will actually happen. The MPC tends towards the conservative and they understand that interest rate effects take a long time to filter into the economy and a lot of the calls for an early rate cut are merely knee jerk reactions to the closing in of the global economy.

Business Report followed Tito to an investment conference where he stressed that South Africa is not isolated from global economic events and that they will have an effect on us, but he parried and dodged questions relating to whether we can expect an early rate cut.

Justmoney would like a rate cut but trusts the MPC to get the timing right, in the meantime we are going to plan our budget again and increase the levels of our savings.

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