Business Cycles 1974-1981 | 1981-1989 | 1989-1996 | 1997-2007 | 2007-2013 | 2013 to date
The 1974-1981 business cycle
The 1970s will, amongst other, be remembered for its oil price shocks. There were two shocks, the first at the end of 1973, with the US oil embargo (when the US dollar price of crude oil jumped by 175%) and then during the course of 1979 (when successive increases saw the price another 165% higher by the middle of 1980). Both these shocks induced recessions in the major industrial countries – the USA witnessed an economic downturn between November 1973 and March 1975 and again a short-lived one between January and July 1980. G7-countries’ real GDP was down more than 2% between late-1973 and early-1975; and again down 1.5% during the first three quarters of 1980.
These oil price shocks effectively brought the era of sustained high economic growth, i.e. the so-called ‘golden era’ during the post-war period, to an end. The 1974-75 global recession is being described as particularly severe, also introducing a structural break in the trend growth rates of the major industrial countries. While the recession was triggered by the first oil price shock, the reality was that earlier changes (between 1968 and 1971) left the industrial countries in a vulnerable position. When the first oil embargo arrived at the end of 1973, the impact was substantial. The earlier changes refer to the creation of a free gold market and the end of the Bretton-Woods era of fixed exchange rates, which introduced substantial strains in the pricing and production processes of the major industrial countries during the course of 1974 (Smit & Van der Walt, 1981: 43).
It is generally agreed that the onset of recessions in most countries during the mid-1970s also announced the onset of a downward phase of a so-called Kondratief ‘long wave’ of economic activity. Trend growth moved appreciably lower after 1975 from that over the 1961-75 period when it averaged 4.8% per annum; the average real GDP growth rate over the post-war period, i.e. 1946-75, amounted to 4.6% per annum (Smit & Van der Walt, 1982: 45).
These global developments were of great significance to SA. The country was impacted directly by the higher crude oil price (and a substantial deterioration of the non-gold terms of trade throughout the 1970s), as well as being impacted indirectly due to SA’s close trading links with the major industrial countries. Real exports dropped sharply by 18% from the end of 1972 to early 1975, which mirrored the close to 15% contraction in mining real value added over the period 1973Q1 to 1975Q3. The non-gold terms of trade also deteriorated by 15% between the end of 1973 and the end of 1975. The downturn phase of the business cycle was also lengthened by the adverse impact of the 1976 Soweto uprisings as resistance to the apartheid political system gathered momentum amongst the non-white population groups.
For a narrative of the peak-to-peak 1974-81 business cycle …