The SA economy has received two body blows: GDP growth fell to a mere 1,3% in the second quarter, followed by a dismal reading for the purchasing managers’ index (PMI) for August. This suggests that third-quarter growth will also disappoint.

Despite the bad news, finance minister Pravin Gordhan believes that neither the global nor the domestic economy will enter a recession yet, unless there’s a serious deterioration in global macroeconomic conditions. He puts the odds against a recession at 60:40 while stressing that these are “very uncertain times” and that “things can go either way”.

In an interview with the FM last week, the minister said: “I’ll stick to that [ 60:40 projection] for now but there’s no doubt that as we go on, the lack of decisiveness and action to grow economies is creating a gloomier picture.”

Treasury was conservative at the tabling of the national budget in February, forecasting only 3,4% real GDP growth for the year — a number bang in line with the new, weaker consensus.

But even the 3,4% figure now looks doubtful, given the downward revision to first- quarter growth (from 4,8% to 4,5%), the abysmal second-quarter growth figure of 1,3% and signs that third-quarter growth will also be weak. Growth will need to accelerate over the second half of the year, averaging 3,4%, to realise the budget forecast.

This seems unlikely, given that global weakness and continued financial market volatility appear set to extend their drag on growth into the third quarter.

Gordhan would not be drawn on whether treasury’s GDP forecast will be revised lower in the medium-term budget policy statement on October 25, saying that the forecast will be finalised only about 10 days into October. “These are very uncertain times and any day or week could change the trajectory of where we’re going.”

But if growth should turn out to be lower than expected, the impact that will have on the country’s debt position will still be manageable, according to treasury. “Whether the deficit is slightly larger or smaller this year is far less important than recognising that our medium- and-long-term debt outlook is stable,” says a treasury analysis of SA’s growth outlook.

Treasury concedes that SA now has less fiscal space in which to manoeuvre, having responded strongly to the 2009 recession. But its game plan is still to support recovery in the short term. At the same time it will intensify its efforts towards medium-term consolidation in order to preserve fiscal sustainability.

This approach is in line with the shift in global thinking. “Whereas over the past few months there was strong support for fiscal austerity, that has changed,” says Gordhan. “There is now a much more nuanced approach which says: focus on growth and jobs in the short term because a focus on fiscal austerity won’t produce the goods.”

What this means is that SA’s fiscal approach will remain countercyclical. In other words: government will avoid a premature withdrawal of fiscal support while simultaneously considering ways to reinforce fiscal sustainability .

The news that treasury is determined to maintain a pro-growth stance will be music to the ears of SA’s beleaguered manufacturing sector.

The drop-off in manufacturing activity was by far the biggest drag on second- quarter growth, subtracting 1,1 percentage points off the quarterly growth rate. By the end of the quarter, manufacturing production was still more than 14% below its pre-recessionary peak (see graph).

Economists blame manufacturing’s second-quarter collapse on the broader global slowdown, strike activity and supply disruptions to vehicle production caused by the Japanese earthquake. Manufacturers say, though, the strong rand and domestic cost pressures, especially from administered prices and wages, are the real culprits.

Manufacturers’ electricity costs have climbed by 140% on average over the past four years as municipalities have raised their tariffs by more than the official increases granted to Eskom, according to Stewart Jennings, CEO of the PG Group and chairman of the Manufacturing Circle, a lobby group of 30 major manufacturing companies.