South Africa's fiscal and monetary policy response to the global recession had been relatively large, despite the fact that no formal stimulus or emergency response plan had ever been activated. Still, gross domestic product (GDP) was likely to contract by 2,1% in 2009, Absa Capital's head of research Jeff Gable said on Monday.

Speaking at the release of the Barclays-affiliated group's September quarter economic research report, Gable said that, "possibly despite ourselves", South Africa had pursued the "right policies at the right time" as the global recession struck.

The size of the fiscal response could be seen in the fact that South Africa's fiscal surplus of around 1% in 2007/8 had been entirely undone. In fact, Absa Capital was now forecasting a "ballooning" of the deficit to 7,7% in 2009/10, as tax revenues fell.

The National Treasury, which forecast a deficit of less than 4% in February, would provide an updated figure in late October, when Finance Minister Pravin Gordhan would release the Medium Term Budget Policy Statement.

Deputy President Kgalama Motlanthe provided a forewarning of a major deterioration in the figure last week, when, speaking at a Congress of South Africa Trade Unions gathering in Johannesburg, he indicated that the tax shortfall could be as high as R70-billion and that the deficit could surge to 8%.

The unofficial fiscal stimulus, Gable elaborated, had been especially evident in the area of government infrastructure spending, which could rise to 9,6% of GDP in 2009/10 from 8,3% in 2008/9, with programmes having been coincidentally activated ahead of the international economic crisis.

Many of these projects would continue well beyond the 2010 infrastructure, despite some of the funding challenges currently being faced by utilities such as Eskom and Transnet.

Similarly, the monetary policy response had been material, with the repurchase rate having fallen from 12% in the third quarter of 2008 to 7% and the prime rate from 15,5% to 10,5%.

Gable did not see room for further fiscal or monetary stimulus, but said that there were definite signs of recovery in the energy, resources and even the manufacturing sectors. Therefore, Absa Capital was of the view that South Africa would grow by 2,3% in 2010.

Recovering electricity production, in particular, was providing evidence of a revival in the economy; with the shorter horizon data showing a sharp increase in production, presumably aligned to increasing demand from the resources and manufacturing sectors.

"Although electricity production is still down year-on-year, the higher-frequency data are providing strong evidence of a recovery in the economy," Gable said, adding that the data emerging from the mining sector were also "looking better". Even manufacturing, where production all but collapsed in the first quarter, had better prospects, but, as with mining, these fortunes were strongly tied to a global upturn.

The Barclay house view on the prospects was extremely optimistic relative to many other commentators. The group argued that the recovery would be V-shaped, and dismissed prospects for a "double-dip", or W-shaped, recession.

Gable reasoned this bullish outlook thus: "Why don't we see a W? Firstly, there's a lot more policy stimulus that is more long-lived than people anticipate.

"Secondly, interest rates are not going to be ‘normalised' anytime soon, with policymakers erring on the side of over boosting economies, rather than under stimulating.

"And finally, to bet against the consumer, you need to believe that the situation is going to get significantly worse . . . and right now we don't see that - there's been a heck of an adjustment on wealth already, but from where we adjusted down to, the direction for the global household seems to rather be in a more favourable direction."