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Platinum strike could cause a recession

By Staff Writer
Nicolette Dirk, finance writer, Justmoney.co.za
 
The problems arising from the five month long platinum strike appears to be never-ending.
Yesterday Statistics South Africa’s (StatsSA) Manufacturing: Production and Sales report showed that manufacturing production has decreased by 1.5% in April 2014 compared to April 2013.Manufacturing production decreased by 1.8% in the three months ended April 2014 compared to the previous three months. 
 
Grim job stats have been released too. Loane Sharp, Adcorp’s labour economist, said there is a continual decline in permanent work, with 54,184 jobs lost in May. 
 
He added there were significant job losses observed in manufacturing (3,000), financial services (5,000) and transport and communications (5,000). 
 
In a statement, Ian Ollis, the Democratic Alliance’s (DA) shadow minister of labour, said considering the negative economic reports witnessed in recent months and the recent rise in strikes the DA will call for an urgent debate of public importance on the recent decrease in economic growth and the increase in unemployment.
 
“The unresolved strike action taking place on the platinum belt has pushed our economy onto the brink of a formal recession, subsequently compromising our employment market,” said Ollis.
 
Are we to blame for our own economic chaos?
 
At a business breakfast held in Rosebank yesterday, the South African Reserve Bank governor, Gill Marcus(pictured), said that while the global backdrop remains difficult as the advanced economies emerge from the financial crisis of the past seven years, it is no longer the main cause of South Africa’s weak domestic economic performance.
 
“The slowdown we have experienced is domestically driven, largely self-inflicted and we cannot blame external factors alone. This does mean, however, that the solutions are in our own hands. Instead of focusing on whether we are entering a recession or not, we should all be striving to restore the economy to the strong growth path that it is capable of achieving,” said Marcus.
 
According to Marcus the strike had already impacted negatively on economic growth and the longer the strike continues, the sooner the adverse effects on exports will be felt.
 
Possibility of a downgrade
 
Alexa Nicolau of Rand Merchant Bank told Fin24 that overall, the market seems to be positioning for a downgrade combined with a potential negative outlook.
 
And reports state that with the rand facing negative sentiment from the platinum strike, the currency could hit R10.80 to the US Dollar soon.
 
The impact of the depreciating rand has already trickled down to the motor industry. Nissan planned to launch the Datsun GO, a model priced at under R100 000. But the rand’s recent performance could threaten to derail these plans.
Marcus said that the recent global crisis has reminded us that financial crises take a long time to repair themselves. 
 
“Such crises are characterised by high levels of leverage and debt, whether households, firms or the state. The loss of wealth associated with the start of a crisis means that it takes a long time to repair these balance sheets.

The process of deleveraging implies low levels of consumption and investment by households and firms, while banks will be reluctant to lend,” said Marcus.

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