South Africa is in a per capita recession – economist

South Africa down

Citadel chief economist Maarten Ackerman said South Africa must “face the facts” and realise that it is in a per capita recession.

Ackerman’s comments come in light of GDP data for the first quarter that was released on Tuesday, showing 0.4% growth in Q1 2023.

This data surprised some experts, as the severe contraction in the fourth quarter of 2022 had set off alarm bells for a potential recession.

While the Q1 2023 data meant the country avoided a recession, Ackerman says a local and global recession remains imminent – and South Africa is already in a per capita recession.

According to Ackerman, South Africa’s economy is in a recessionary environment due to all the headwinds it is facing. 

The economy grew by only about 0.2% in the past year, which puts pressure on social support, and Citadel’s analysts foresee a low growth rate of less than 0.3% for the rest of the year. 

This is a more positive view than many experts, including the International Monetary Fund (IMF), which predicts very little to no growth for South Africa in 2023.

Bureau for Economic Research chief economist Hugo Pienaar has gone as far as calling 2023 a “write-off” in terms of economic growth.

In addition, “population growth is outstripping economic growth and, to my mind, that means we are already in a per capita recession”, said Ackerman.

A per capita recession occurs when an economy grows, but living standards fall – a stage Ackerman believes South Africa has already reached.

South Africa’s most pertinent challenges, including record high load-shedding, over-budget wage demands from trade unions and the battered rand, are putting “enormous strain on South Africa’s fiscal framework”, he said.

Consumers are already “feeling the pinch”, he added. “The average South African is facing lower take-home pay, high unemployment (the third highest in the world), high inflation and rapidly increasing interest rates counter to the rest of the world.” 

Citadel chief economist Maarten Ackerman

Global recession

According to Ackerman, the overall current macroeconomic picture is one of extreme uncertainty and volatility and shows a very strong chance of a global recession in the near future.

Citadel’s Recession Scorecard looks at ten economic indicators for a global recession, and one of its most concerning current predictions is a greater than 90% likelihood of a US recession in the next 12 to 18 months. A US recession could trigger a global recession.

 All ten of Citadel’s Scorecard indicators are bringing up red or yellow flags at the moment. 

“The biggest red flag for us is the US’s inverted yield curve, which is the difference between long- and short-term interest rates,” said Ackerman. 

Citadel’s analysts foresee the US experiencing below-capacity growth for the next three years, as the cost-of-living crisis in the US is severely impacting consumers. 

This will have a knock-on effect in Europe, where the EU’s inflation numbers are of great concern to the European Central Bank. The Bank of England, in turn, is predicting a UK recession.  

Only China is showing real growth, but this is “not enough to save the global economy from recession”, said Ackerman.

“Given that central banks are committed to bringing down what is very sticky inflation and that the cracks in the system are already starting to show, we must prepare ourselves for a difficult economic environment over the next few quarters.”

The IMF also recently published a report flagging three factors spelling imminent global recession: The effect of rising interest rates on the US property market, cracks in the real economy coupled with liquidity issues in the banking sector, and job losses in the US.

These factors are usually signs of an incoming global recession.

Lesetja Kganyago
Reserve Bank governor Lesetja Kganyago

Cautious optimism

Ackerman said he sees an end to high inflation, interest rates and the weak local currency despite a looming recession.

He said he sees peak inflation, peak interest rates and the peak dollar all playing out on the global economic stage, but with greater uncertainty caused by the recent shocks in the US and European banking systems in the foreground. 

“This is not surprising, as you cannot expect central banks to normalise monetary policy as quickly as they did without some sort of fallout,” he said.

However, he believes South Africa has reached peak inflation and is turning a corner – “albeit slowly”. 

“It is still going to take the central banks a while to bring inflation down to their target levels.”

Meanwhile, “increased interest rates and the cracks in the financial system will put growth assets, like equities, under pressure.”

Increasing gross fixed capital formation, for the sixth quarter in a row, is another “beacon of hope”. It indicates greater private and public sector investment in the economy, including more renewable energy and residential and commercial construction.


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