The level of understanding of the economy in the general media sometimes leaves me astounded. Coverage of the Gross Domestic Product (GDP) data in the The Times is a case in point.
Look, the economic situation is not great but let’s just make one thing clear: yesterday’s GDP data does not show that South Africa is in a recession. It shows that South Africa was in a recession in the final quarter of 2008 and the first quarter of 2009, that is, from about October to about the end of March. The economy may still be contracting, but the data does not show that. We’ll only know for sure in three months’ time whether we’re still in recession now.
Yet the headline in The Times trumpets: “South Africa is now in recession”. The sub-head is even more inaccurate: “6.4% drop in GDP stuns cabinet and signals deep recession”. The data may have stunned Cabinet (though why it should, I don’t know; the writing has been on the wall from some time). But signalling something means warning that it is about to happen. This drop in GDP happened months ago. It is history; it doesn’t signal anything.
What’s more, the 6.4 percent decline in GDP is a quarterly figure, and it is quite possible that the economy will record positive growth on average over the whole year. Even the worst doomsayers are predicting a contraction of between1 and 2 percent for 2009. Deep recession? I think not, and The Times should be more careful about what it advises its readers to do. It is too late to “cut up your credit card” now, as The Times suggests, and if all South Africans followed the newspaper’s advice, we’ll dig ourselves into a much deeper hole, because consumer spending remains the driver of the economy. The last thing we need right now is for everyone to stop spending. It is true that people should try to avoid unnecessary debt. But they should always do that, and Times readers who did during the good years – and remember, we had many; 17, to be exact – won’t have to worry about a recession now. Those who didn’t – well, if they survived the past two years of high interest rates, there is no reason why the coming months will be any more difficult. Lower interest rates will, in fact, give them some breathing space.
Yes, we have had job losses, and there will probably be more. But any business which, as a result of these figures, decides to “go into survival mode and try to cut costs through retrenchments” will be making a big mistake. Businesses should react to the current economic situation and the economic outlook, not the past. And the reaction of the stock market to yesterday’s data tells us that businesses see things differently. The JSE’s All-Share Index rose (and continues to rise today), in spite of a big drop in the share price of one of its biggest constituents, MTN, due to misgivings about that company’s planned merger with an Indian rival. The rand, too, has held up, and bond yields hardly moved. Investors are telling us they think the worst is over, not, as The Times imagines, just beginning.
And what about this bit of economic illiteracy: “This is the worst figure since the third quarter of 1984 when GDP was at -6.5 percent”. GDP is the amount, in money terms, produced by the economy. It can grow or contract by 6.5 percent, but it cannot be “at -6.5 percent”. Here’s another: “Yesterday, Statistics South Africa said gross domestic product growth slowed by a shocking 6.4 percent in the first quarter.” Statistics South Africa said nothing of the sort. It said GDP contracted by 6.4 percent, after taking into account inflation. It didn’t grow at all.
Coverage by the specialist news media such as Business Day and Fin24.com has been competent. But most ordinary people don’t learn about the economy from those niche media. They get their news from general media such as The Times, and when it comes to the economy, they are badly served.