Get used to the ‘R’ word
The outlook for the South African economy seems to be deteriorating by the day as the economy is unable to escape from the world’s mounting economic woes and faces the penalties for past excesses – a high current account deficit, high interest rates and weak currency.
“Given the size of the current account deficit excluding net foreign direct investment, South Africa will doubtless have to undergo a significant economic adjustment,” Brian Coulton, managing director of Fitch Ratings and the agency’s head of Europe, Middle East and Africa reportedly said. “GDP growth of 1% to 2% next year would be a good outcome in our opinion, which will lead to deterioration in fiscal performance and could test support for the macroeconomic policy framework.”
According to Dr Prieur du Plessis (pictured), Plexus group chairman, “The South African economy appears particularly vulnerable. This is evident in the historical relationship between South Africa’s real GDP growth and the global services Purchasing Managers’ Index (PMI), used as a proxy for world economic growth.”
He says “more gloom is undoubtedly in store for the local economy”. Further confirmation of this is provided by the weak trend in South Africa’s retail sales that looks set to pull GDP growth down further, especially when one considers the two-quarter lag for GDP growth.
“I will not be surprised to see the South African economy join the US, UK, Japan, Hong Kong, Singapore, the Eurozone, and many other countries, and enter into a recession before too long, at least on a quarter-to-quarter basis,” says Du Plessis.
“The South African Reserve Bank may try to defend the rand a bit longer, but it is inevitable that interest rates should be reduced without much further delay. That is the appropriate monetary policy for an “R” outlook.”
