Picture: THINKSTOCK
Picture: THINKSTOCK

SA FACES an extended period of very low economic growth or stagnation, rather than a spiral into recession, say economists at London-based research company Capital Economics.

The company sees SA’s economy growing 0.5% this year and 1.3% next year, it said on Monday. Low economic growth has several negative consequences: low job creation and muted investment by private-sector companies.

The economists did, however, not completely discount a recession, saying this could happen if SA suffered a further deterioration in its terms of trade; e.g. from a collapse in precious-metals prices.

Capital Economics’s research note compared SA to its peer Brazil, which is in its worst recession in more than 80 years mainly due to low commodity prices, overspending during the commodities boom and a dysfunctional government.

While overspending has occurred in both countries, what has counted in SA’s favour is a "still relatively low" public debt ratio, Capital Economics chief emerging markets economist Neil Shearing and Africa economist John Ashbourne said. "As a result, it has (so far at least) been able to maintain the confidence of investors."

The commodity price shock that hit SA was also much weaker than the one that hit Brazil, the economists said in comparing SA to Brazil. "The price of Brazil’s main exports fell further than SA’s," they said.

SA, as a larger energy importer, benefited more from falling global energy prices.