Back to Africa Check

ANALYSIS: When is a recession not a recession?

South Africa’s economy shrunk by 0.7% in the second quarter of 2018 on the heels of a 2.6% decline in the first quarter of the year.

This meant the economy had slipped into recession, the country’s statistics office announced. Statistics South Africa added that the widely recognised indicator of recession was at least two consecutive quarters of negative growth.

But economist Dr Roelof Botha countered that the country is not in a recession. He was speaking at a September 2018 conference focused on financial “disruption” and “challenging the status quo”.

This is because there was more than one way to define a recession, Botha argued. According to him, the Organisation for Economic Co-operation and Development “says one should compare GDP on a year-on-year basis rather than on a quarterly basis”.

“If you compare the second quarter of 2018 to the second quarter of 2017 one can see SA is not in a recession. That is a fact.”

OECD doesn’t have an official definition

The OECD, an economic grouping of 36 mainly European countries, told Africa Check it does not have an “official recommendation” on how to define a recession.

Its usual definition is borrowed from the National Bureau of Economic Research, a US-based economic research organisation, an OECD spokesperson said.

This defines a recession as consecutive months of declining growth, which “has been interpreted as two consecutive quarter-on-quarter negative growth rates”.

Using this definition and the latest GDP figures, South Africa’s economy qualified as being in recession, the organisation said.

Annual GDP growth rate ‘is more stable’

Botha told Africa Check he wanted to make the point that statistical agencies have a choice between using quarterly and annual measures. In his estimation the year-on-year approach provides a better picture of growth.

“The fact that South Africa had a rather good fourth quarter GDP performance [of 3.1%] introduces the current misconception that we are in a recession, which is not the case when doing the year-on-year analysis,” he said.

Botha said the US government measures growth on a quarterly basis, but China’s “widely followed headline GDP growth rate” reports a year-on-year rate. (Note: The National Bureau of Statistics of China also reports quarterly GDP data.)

Both methods had their strengths and weaknesses, but a year-on-year approach requires fewer adjustments and is better suited for international comparisons, Botha added.

“Any statistical agency worth its salt will publish both rates,” he said. Focusing on quarter-on-quarter data was “a really bad choice” for South Africa given a tide of unfavourable news, such as rising unemployment and low investor confidence, the country was grappling with.

Stats SA: year-on-year approach can obscure recovery

Stats SA does not have a formal definition of a recession, Peter Perkins, who works in the data agency’s economic statistics department, told Africa Check.

They “usually use the widely accepted convention that two or more consecutive quarters of negative growth are referred to as a recession, where growth is measured by the quarter-on-quarter change in real GDP, seasonally adjusted”.

Perkins said organisations and individuals do have a choice of how to define a recession, but the year-on-year approach posed a risk.

“A problem with using the year-on-year rate is that year-on-year growth in GDP may be negative at a time when GDP is recovering (i.e. showing positive growth quarter-on-quarter). You then have the risk of saying there's a recession at a time when the economy is actually recovering,” he said.

All GDP data subject to revision

Prof Jannie Rossouw is head of the economics and business sciences school at the University of the Witwatersrand. He told Africa Check that the “accepted definition” of a recession is that of two consecutive quarters of negative economic growth.

He also did not agree that the year-on-year approach was more stable.

“Even if you look year-on-year, your GDP figures are subject to revision. You will have that problem whether you measure it year-on-year or quarter-on-quarter.” (Note: Revision is a routine restating of growth figures as new economic data becomes available.)

Statistical agencies do have a choice of giving either, Rossouw said, noting that Stats SA had done this with its most recent data.

South African economy ‘permanently in recession’

The bigger challenge for South Africa was that the economy has perennially underperformed and not enough jobs have been created, Rossouw said.

“We have a massive unemployment problem; our economy is actually permanently in recession because we can’t find the people jobs. With such underperformance it becomes an academic debate whether we are in a recession or not.”

If population growth outpaced economic growth then a country is actually becoming poorer, Rossouw added.

South Africa’s recent economic performance qualified as a technical recession, Razia Khan, Standard Chartered Bank’s chief economist for Africa, said.

But there might still be good news for South Africans, Khan said.

“In the common parlance, a full blown recession would be a full year of negative growth. We still think it unlikely that this will be the outcome for South Africa in 2018.”

Additional research by Gopolang Makou.


Further reading:

Republish our content for free

We believe that everyone needs the facts.

You can republish the text of this article free of charge, both online and in print. However, we ask that you pay attention to these simple guidelines. In a nutshell:

1. Do not include images, as in most cases we do not own the copyright.

2. Please do not edit the article.

3. Make sure you credit "Africa Check" in the byline and don't forget to mention that the article was originally published on

Add new comment

Restricted HTML

  • Allowed HTML tags: <a href hreflang> <em> <strong> <cite> <blockquote cite> <code> <ul type> <ol start type> <li> <dl> <dt> <dd> <h2 id> <h3 id> <h4 id> <h5 id> <h6 id>
  • Lines and paragraphs break automatically.
  • Web page addresses and email addresses turn into links automatically.
limit: 600 characters

Want to keep reading our fact-checks?

We will never charge you for verified, reliable information. Help us keep it that way by supporting our work.

Become a newsletter subscriber

Support independent fact-checking in Africa.