SA in a Technical Recession - what does this mean to you.

So, we are officially in a Technical Recession. If you have not been exposed to all the articles floating around, a technical recession is a period in an economic cycle of a country that can be identified by two consecutive quarters of negative growth .

SA has had a 0.8% contraction in the 3rd quarter of 2019 and 1.4% in the 4th quarter of 2019. This is the 3rd recessive period we have had since 1994, with the last being in 2018 largely due to load shedding.

So what does this mean to you? Well, as a whole, South Africans are getting poorer at an alarming rate, so says economist Azar Jammine.

So what should we expect in the short term?

In a country with an already high rate of unemployment, a technical recession forces companies to shed payroll in order to preserve cash flow. This often means retrenchments, lower pay increases and lower bonuses.In the first few weeks of 2020 , Telkom has announced that it wishes to shed 3000 jobs and Massmart another 1440.

New car sales, retail industries etc normally stimulated by growth phases will face a contraction, which may lead to more job losses.

The knock on of that means lower share prices and dividend payouts for the companies and sectors affected.This means lower investment returns for investors in funds ranging from ETFS and Unit trusts to actual holders of shares. The knock on effect could mean a lower pension payouts and incomes.

The housing market gets into a state of devalue, as the supply generally outweighs the demand. As the costs of servicing bonds bought on a higher salary with expectations of higher bonuses and upkeep costs rise, many consider down scaling, but with a decline in the economic cycle, there are many more sellers than buyers. Banks get wary of lending and rates and terms become unfavorable. This in turn pushes prices of properties down.

Depending on the length of the recession this could be the follow on - knock on effects :

• Educational : Unemployment and income losses can reduce educational achievement. As families struggle to put food on the table, families abilities to provide a nurturing, healthy environment that would provide a supportive learning environment would be severely hampered.Education is driven by family budget , and a hampering of the budget, where many sacrifices need to be made, will have an impact on the level and quality of education available to their children.
• Impact of Job losses : Loosing ones job creates a vast majority of problems for both individuals and families. Income losses, even short term losses can have a devastating affect and take years to recover from.There is also the emotional toll that this presents, and entering the job market at an advanced has to compete with candidates willing to work for a lower salary, and often has to accept lower salaries.
• Poverty : When children grow up in poverty, they are more likely to have lower earnings, commit crimes and have poorer health later in life. There is significant evidence that poverty has lasting consequences for kids, including educational achievements, cognitive development and behavioral outcomes.