Double-dip recession fear grows but not for SA

Double-dip recession fears may be rising, but there is little prospect of back-sliding by South Africa, say strategists at Absa Investments, the Absa financial service group’s investment arm and a beneficiary of constant global research updates from UK sister company, Barclays Capital (BarCap).

In his latest report to investors, Craig Pheiffer: General Manager: Investments, Absa Asset Management Private Clients, admits there is increasing talk of a double-dip recession in individual countries and even globally.

Senior figures such as David Blanchflower, former member of the Bank of England's monetary policy committee, have questioned where growth will come from when public sector stimulus stops.

A report by the Organisation for Economic Co-operation and Development (OECD) noted that global recovery risks may have increased. But Pheiffer says the weight of expert opinion is solidly behind continued recovery and improved local performance, though we might not be able to maintain the 4.6% seasonally adjusted and annualised (saa) rebound recorded in the first quarter.

Pheiffer notes:

• the International Monetary Fund’s last World Economic Outlook upped the global growth forecast to 4.2% in 2010 and 4.3% in 2011

• the OECD forecast growth in the global economy of 4.6% in 2010 and 4.5% in 2011, while warning that risks may be rising, too

• in the final quarter of 2009 the local economy grew quarter on quarter by 3.2% saa and at 4.6% saa in the first quarter of 2010

He adds: “Second-quarter growth is forecast at 4.4% quarter on quarter, with the domestic economy growing by 3.3% in 2010 and by 4.4% in 2011, from -1.8% in 2009.”

British colleagues at BarCap believe countries like Venezuela and Spain rather than South Africa are in for a bumpy ride.

“BarCap, who were ahead of the game in forecasting the emergence of the global economy from recession, acknowledge that investors are concerned that concerted fiscal consolidation might halt the global recovery,” says Pheiffer. “However, BarCap point to strong economic data from Asia, Europe, India, Brazil and various G7 countries as being indicative of robust growth momentum.

“BarCap are confident the global recovery can withstand a tightening fiscal stance and forecast that the global economy will grow by 4.7% in 2010 and 4.4% in 2011.

“In 2010 the world’s developed economies are forecast to grow at 2.6%, with the developing economies growing by 7.2%.”

Less rosy scenarios seem likely in some national economies analysed by BarCap.

Pheiffer adds: “Venezuela is one of the countries tipped to contract in 2010 after contracting by -3.3% in 2009. The Spanish economy is forecast to shrink by 0.9% and 1.1% in 2010 and 2011 respectively, from -3.6% in 2009.

“One would be tempted to forecast a double-dip recession for Spain, but unfortunately for the Spanish people the economy hasn’t exited the first recession.”