People are incurable pessimists - or optimists. It all depends on the timing. In the boom years it is hard to find someone who believes there will ever be a recession again - and the longer the boom, the more stubbornly the optimism persists. In such times, economists concede that whatever is rising - house prices, credit extension, profits, sales of new cars - cannot continue doing so forever, but they always like to say there's room for just a little more growth. Investors and asset managers are terrified to miss out, so they hang in. Eventually bubbles develop and some part of the financial system that cannot take further strain gives in.
In a recession, the same psychology operates in reverse. In the crisis triggered by the US subprime disaster, there was speculation that the financial system could collapse completely. Recovery would take many years, was the prediction, because the medicine (essentially, huge government intervention) was expected to save the patient but create other enduring side-effects (like crippling debts and inflation). Gloom prevailed, and trust and investor confidence were destroyed. Even fools were no longer parted from their money.
Eventually it turns. We are not getting a crash in reverse, but this week we were told that the recession in SA is officially over. The economy exceeded forecasts with 0,9% growth, seasonally adjusted and annualised, in the third quarter. This was not entirely a surprise, because there had been a slowing in the rate of decline in many sectors, and in others (like construction) growth had continued.
But beware the seduction of the numbers, which can be immensely reassuring and compelling, especially when they are packaged in visual representations like graphs and pie charts. The danger is that you choose the numbers you want.
Positive growth was heavily boosted by manufacturing, but that sector had plunged more than most, so was coming off a low base. Factory output remains a concern, partly because it has lagged the rebound in global industrial production and is still compromised by the strength of the rand, the third-best performing currency against the US dollar this year.
An average is created by extremes, and towards the other end of the scale is the retail sector. Here, another drop of 5,1% year-on-year in September (-6,5% in August) confirmed that those consumers who have jobs are still under enormous pressure, while there are many more consumers unemployed than there were a year ago.
The crucial statistic is that the economy has shed around 770 000 jobs so far this year. Multiply that by the number of people affected, and you have an idea of the damage - and that is not something that can be repaired by looking at reassuring graphs.
Total demand remains weak, and business and consumer confidence are still low. It is true that perceptions of recovery can generate momentum in the real world. The feel-good factor from the 2010 World Cup will boost our self-confidence as a nation and generate some foreign exchange - though nobody has explained exactly how a soccer tournament will prompt consumers to spend money that they just haven't got and which banks refuse to lend them.
We are likely to see an overall growth rate of about -2% for the year - and if one decided to change the definition of recession, it could be argued that we are still in one. What this week's numbers signal, then, is that SA may be beginning to recover from recession, not that the recession is over.
But there is comfort to be had in the lessons of the crisis. For companies and individuals, enterprise must be balanced by prudence. If the relationship between borrower and lender is not broken - as it was in the US housing market - the market will see to it that risk is managed. Above all, companies whose business models are designed to be resilient in all conditions - and we have many such companies in SA - will be well placed for the upturn when it happens. Perhaps we will be more sceptical about the boom when it happens, as it will - but that's unlikely.
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