Since a recession is usually defined as two consecutive quarters of negative growth, Busa agrees that talk of an economic recession in SA is premature and unnecessarily alarmist. There are sufficient growth factors in the economy to obviate such an outcome and several recent surveys have suggested that, although business conditions are seen as unfavourable, no major further deterioration was expected by business respondents in several sectors of the economy in the months ahead.
Although the bulk of the focus has recently been on the sharp decline in consumer spending, Busa's evaluation of SA's economic prospects is based on the still positive outlook for agriculture this year as well as the apparent greater reliability in electricity supply in the months ahead - given the negative economic impact of power outages in the first half of 2008. These prospects are also underpinned by the continued high level of capital investment, especially the R500 billion infrastructural investment planned over the next three years. On present economic evidence Busa sees economic growth in SA of not less than 3% in 2008 as well as in 2009.
Busa recognises that the risks in the global economic environment remain high and that SA is not entirely immune from these factors. Yet SA is to some extent insulated from the global economic growth slowdown, as the main drivers of SA's recent economic growth have largely been internal and international commodity prices have remained relatively high. Although SA has a sound economy, the large deficit on the current account of the balance of payments - coupled with an excessive reliance on portfolio investment - nonetheless remains a serious vulnerability which requires appropriate policy management.
Busa accepts that several of the pressures on the economy, such as rising oil and food prices, are not unique to this country. Nonetheless, SA can mitigate these pressures if they are promptly addressed. Structural steps to boost agricultural production as well as urgent short term social relief measures should be considered and implemented as part of the adjustment process to changing economic conditions. One option could be to investigate the possibility of introducing a national food stamp system in SA.
Busa also believes that SA is relying too heavily on interest rates to drive the adjustments in the economy. The rapid and effective implementation of supply-side measures to boost production would help to stabilise the economy and reduce the need for further interest rate increases. The more credible such policies can be, the better the longer term economic prospects. In any case, while Busa supports the inflation targeting regime, there is now overwhelming evidence that the previous interest rate rises have had a substantial impact on the economy. Their cumulative effect should be given more time to show results before interest rates are raised again.
Given the uncertainties in both the global and domestic economic environments, all efforts must be made to espouse confidence-building policies and attitudes in the interests of longer term sustainable growth and employment.