Businesses had to know where in the business cycle they were positioned and what their sensitivity to the business cycle was, to enable them to survive the downturn, economic analysis firm IHS Global Insight senior economist for South Africa Ronèl Oberholzer said on Thursday.

There were six phases in the business cycle, she explained during the IHS Global Insight Southern Africa conference, noting that South Africa was now in the second phase of a downswing, with leading indicators showing a change of direction in economic activity.

The country’s economy had reached the bottom of its downturn and while some risks still remained, the remainder of 2009 would be characterised by consolidation and stabilisation of the economy, followed by stronger growth in 2010.

South Africa entered its first recession in 17 years in the first quarter of 2009, with contractions in gross domestic product (GDP) expected to continue in the second and third quarters of the year.

However, this was not South Africa's worst recession, said Oberholzer, pointing out that the country had seen worse recessions in the 1970s and 1980s when sanctions were implemented against the country over its apartheid policies.

South Africa’s GDP would most probably contract by 1,3% for 2009, but would improve to 2,1% in 2010 and 3,9% in 2011, the IHS forecast.

The biggest drivers of an upswing in the country’s economic growth would be final consumption by households, followed by exports, Oberholzer said.

She added, however, that consumption by households was sensitive to interest rates and that a 100 basis point cut in the repo rate would add 0,32% to household consumption growth in 12 months time.

This would also lead to a 0,27% growth in the county’s GDP in 12 months time.

The 4,5% cuts in total that the South African Reserve Bank (SARB) has made in the repo rate since December last year would contribute 1,5% to consumption expenditure throughout 2010, she noted.

Oberholzer did not expect the country’s inflation to fall in the 3% to 6% range targeted by the SARB this year, but said that this would likely occur in the first quarter of 2010, as the country’s output gap increased and food prices came down.

She warned, however, that there were some risks as a 100 basis point increase in the repo rate could lower the country’s economic growth by up to 0,3% in 2009.

She also said that a 2% cut in the repo rate, as demanded by labour union the Congress of South African Trade Unions at the beginning of June, could potentially overstimulate the economy, which could have negative consequences for the country’s future growth.

Further, demand for South Africa’s exports would be lead by the growth in the global economy.

A 1% drop in the average global growth compared with the baseline would led to a drop in the expected price growth of the country’s main export commodities, namely gold, platinum and coal, which would lower the country’s economic growth by up to 0,4% in 2009.

Real exports of goods and services growth could also decline by as much as 1,7%, she noted.

Oberholzer said that businesses that tended to lead the business cycle, such as those in the mining, finance and exports sectors, could gear itself for a recovery towards the end of this year.

Those that coincided with the business cycle, should plan for improved conditions in 2010, while businesses in sectors that were lagging the cycle, such as construction, should only expect to start seeing improved conditions by late 2010 or early in 2011.