In September 2008 the world experienced one
of the most serious recessions in history. On the American stock exchange
alone, approximately $7.4 trillion of value was destroyed between July 2008 and
March 2009. For perspective, South Africa’s total GDP at present is about $350
billion. In other words, it was about 21 times South Africa’s total current
Unfortunately, it appears that already shaky
global markets now again are teetering on the brink with the coronavirus
threatening to push us over the edge. This article gives an indication of what
we may expect from a global recession, the drastic consequences it may have,
but also what opportunities may open up following the recession.
By looking at what happened in previous
global downswings, we may learn important lessons on how to prepare for, react
during and act in the aftermath of such an enormous event.
Dow Jones and NASDAQ
This graph shows what happened on the
American stock exchange following the 2001 and 2008 recessions (see grey areas).
As you can see, the markets have already been reacting in a similar way to the
uncertainty brought about by the coronavirus. So far the impact has been
GDP growth (annual %): USA,
World and SA
On a macro scale we can see that GDP growth
during the 2008 financial crisis was negative in the USA, South Africa and the
rest of the world. Current estimates by the World Economic Forum (WEF), the
World Bank and others are that we now are facing a similar crisis.
GDP growth (annual %, y-t-y
change in rate): South Africa
This graph is looking specifically at South
Africa’s GDP growth in two different ways. The top graph is the same as the previous
one, but the bottom one gives an additional perspective. From the graph we can
see not only that South Africa is experiencing a huge problem with regard to
low growth, but also that the rate of growth relative to the previous year is declining.
Since the 2008 crisis we have been growing ever slower. The rest of the world
has recorded very strong growth since 2009, while we have been stagnating and
have never really recovered.
Steel production: South Africa
It is no secret that the steel industry in
South Africa is experiencing enormous pressure. This is also clear from our
steel production figures. Take another look at the trend since the 2008 crisis.
The trend increasingly is downwards. The way we react following the economic
impact of this virus is going to be critically important.
Total vehicle sales: South
Total vehicle sales are regarded as a
so-called leading indicator. It is often used to make projections for
economies. When consumers and businesses buy more vehicles, it is sign of
confidence and expansion of business. In South Africa we again see that
business to a large extent has been stagnating since the 2008 crisis. Should
this again be the case owing to the impact of the coronavirus, it means that
our economy will start off from an even lower level.
Manufacturing production: South
Again the same trend. South Africa’s
manufacturing industry at the moment is not moving at all and in fact is
trending downwards. Given restrictions on international trade etc, there is
going to be a similar impact as in 2008.
The gold price almost may be seen as the
opposite of vehicle sales. It is an indicator of uncertainty. Whereas an
increase in vehicle sales sends out positive signals with regard to confidence
and certainty, a rising gold price indicates the opposite. This is why in the
run-up to 2008 we see that the gold price increased strongly, as it is doing
now. As people become more risk averse, they avoid more risky assets and rather
move towards gold, which is seen as a safe haven for capital.
While a declining oil price may be welcomed
as a positive by consumers when filling op their vehicles, it often also is an
indication of enormous underlying economic problems. As economic activities decrease
in the midst of a recession, the demand for oil also decreases and so the price
declines. Here we have to point out, however, that the current decline in the
oil price cannot be ascribed only to the coronavirus but also to geopolitical
issues between countries such as Russia and Saudi Arabia.
Sales of durable goods: USA
To conclude, he next two graphs look
specifically at the USA – the centre of the 2008 crisis. The first graph looks
at durable goods, meaning consumer goods that are not consumed immediately. Think
of, for example, items such as a dishwasher, furniture, electronic goods and
jewels. We have already heard how enormous the impact of the virus and
restrictions on free movement may be on this kind of businesses. However, this
graph also shows how badly things may go wrong in times of large-scale global
downswings in economic growth.
Finally, apart from panic purchases of
toilet paper and hand sanitisers, we may expect retail to suffer unbelievable
damage as a result of the unique nature of the virus as well as the inevitable
economic consequences it may bring about.
In conclusion: the picture is bleak indeed,
but the aim of this article is not to cause panic. I therefore leave you with
the following four points to ponder in connection with the economic
consequences of the coronavirus:
Realise that it is a crisis. We
do not know how long it is going to last, but at present there is no serious
expert that does not predict a drastic impact on the global economy.
Realise that we have survived
previous crises. The whole idea of indicating how bad things were in 2008 is
precisely also to indicate that this does not mean the economic latter days.
Realise that opportunities may
indeed open up under such circumstances. Economies show strongest growth
following such crises – therefore, prepare for the suffering that is coming,
but also for the opportunities that will follow.
Realise how enormously
important it is going to be following this economic suffering to force the
government to make the correct decisions. Take another look at the graphs.
Compare what happened in the US following 2008 with what happened in South
Africa. Can you see the stark contrast between our stagnation and the enormous
growth and development in the US? South Africa’s civil society has never been
as strong as it is at present. Once the health-related issues of the virus have
been processed and solved, we will have to exert unprecedented pressure on the
government to put the correct policy in place. We simply cannot allow another
decade to be lost.
Once this virus has passed,
we will also have to start developing a vaccine against bad economic policy.