Working Paper BETA #2018-33

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Title : Is the South African economy likely to fall back into recession in 2018-2019?

Author(s) : Francis Bismans

Abstract : This paper has two main objectives: on the one hand, to establish the occurrence of a recession of the South African economy during the years 2015-2016; on the other hand, to build a predictive model to determine whether South Africa is likely to fall back into contraction in the years 2018-2019. Consequently, we first propose a turning point chronology for the business cycle based on a classical conception of economic cycles and a non-parametric algorithm – called BBQ for BryBoschan Quarterly – applied to the real GDP series for the period 1970-2017. Its implementation allows us to detect one recession in the economic activity which lasted four quarters in 2015 and 2016. Special attention is given to the macroeconomic context of the analysis. Secondly, a dynamic probit model is built, which includes only one predictor, namely the total credit supply. In-sample results show that this dynamic specification performs very well. A real-time forecast leads to the result that the probability that the South African economy will fall back into recession during the 2018Q1-2019Q1 period, is extremely small.

Key-words : Business cycles, forecasting, dynamic probit model, recessions, turning points.

JEL Classification : C41, C53, E32