Stats SA released its latest GDP (gross domestic product) data earlier today and also announced that South Africa is currently experiencing a technical recession.
You’d be forgiven for getting a fright: “recession” is one of those economic terms that typically strikes fear into the heart of the typical consumer. With that being said, though, there’s no need to get too upset.
Whilst the negative growth the country has experienced in the past few months is something to be concerned about, being in the midst of a technical recession is not the end of the world.
What is the difference between a recession and a technical recession?
To be frank, in terms of definition, there is precious little difference between the two terms. A country’s economy experiences a recession when it has two consecutive quarters of year-on-year decline in the GDP. In other words, economic results are compared to what they were a year ago.
This is a normal part of the business cycle, which includes periods of economic growth, called expansions (when production, employment, incomes and sales increase), and periods of economic decline, called contractions.
Recessions can sometimes affect the entire global market, as happened when the world experienced the global financial crisis of 2008. When the effects of a recession are felt this broadly, it affects all markets, regardless of whether countries are developing or developed, causing economies to experience setbacks.
When a deep recession lasts for a long time, this gives rise to an economic depression, like the Great Depression of the 1930s. The fall in the GDP is much bigger and longer than it is during a recession.
A technical recession means that a country has experienced two consecutive quarters of decline in the GDP, but these are not year-on-year comparisons.
How does a technical recession affect you?
The effects of a recession are often most visible in consumer behaviour as a result of the recession. Consumers often cut spending on non-essential items and rather spend money on necessities like food and fuel, which in turn might prolong the recession, as consumer spending does not offset the economic slowdown.
If you are looking to buy a house, you might have some trouble securing a home loan, and there might be an increase in the general cost of living. The full effects of the recession only become clear as time progresses.
It is always important to remember, however, that a period of recovery follows as soon as a recession ends. It is too early to say how long this one will last, but it’s safe to say that it is always good to save as much as you can for a rainy day – even if that rainy day is really a technical recession.