Emergency rate cut?

By Staff Writer
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Emergency rate cut?

Statistics SA released some scary, well, statistics yesterday.

These are the figures that relate to our GDP. GDP or Gross Domestic Product is the total of all goods and services produced by a country over a specific period.

The period in question is the last quarter of last year, Q4 2008.

The figure has fallen into the negatives. Negative 1.8%.

When an economist talks about 'negative growth' what they really mean is that our economy is contracting, not growing.

This use of the word growth is due to the mindset that without growth we fail.

There are other economic threads of thought that would point to the obvious, that we can't keep growing as the earth is a finite resource.

However non growth economics are anathema to classical schools of economic thought.

This is why the misnomer 'negative growth' kicks in, and with too much emphasis on growth we run the risk of uneconomic growth.

However, the system as it stands is one whereby negative growth is a big bad wolf that has come to eat us all up.

With our GDP contracting by 1.8% at the end of last year we are not in a recession.

For a recession you need to consecutive quarters when the economy contracts. The third quarter of 2008 grew at 0.2% this is pretty close to no growth but technically does not put us in a recession.

The business news outlets all carried comment about the new figures with some even speculating that The Guv, Tito Mboweni, will call an emergency rate cut.

But bear in mind that rate cuts do take some time to filter their effects into the economy itself. A rate cut now is going to have an effect in a few months time, they are not a quick fix and more of a guide for where a central banker wants the economy to go.

Here are some of the comments from the papers.

Fin24 was in the surprise rate cut camp, but also qualified the chance of this happening on the inflation data due in at 11:30 Wednesday 25 February (today).

If inflation has not responded to the previous rate cuts (and the change in how it is worked out) then there may be more weight to the possibility of an emergency rate cut.

iAfrica interviewed a bunch of economists to get their take on the situation, with most figuring on an early rate cut coming.

The Times reckons that we are already in recession and their quoted economist says this is due to the stats for last year needing to be revised, and that there was already a contraction in quarter three.

The thing is, these are notional versions of reality and when the difference is only 0.2% that may be right, but can never be entirely accurate as it is not what it is itself, and merely a model thereof.

According to Bua News if our economy is shown to have contracted in the first quarter of 2009 then we will be in a recession.

Right now there is a lot of uncertainty and the best thing you can do is keep up with your budget planning and keep your savings in a safe place. There is more turmoil to come and it won't be pretty.

 

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