Mixed reviews for the local economy
Spend less, save more and diversify your portfolio
The global economy is still fighting to return to its former flair. Economists around the world are nervous of making false predictions about the future and are choosing rather to follow the market volatility with some scepticism.
The good news is that the Monetary Policy Council (MPC) has already slashed interest rates by 450 basis points since December 2008, despite not adding another cut today. This decline in interest rates means that paying off debt becomes much easier as repayment premiums drop.
This is a welcome development as the SA consumer remains highly indebted – although the rate at which new debt is being taken up has declined considerably since last year; the growth in credit extension to the private sector has dropped from a high of 27.5% in October 2006 to 8.5% in April 2009.
According to Tendani Mantshimuli, Consumer Economist at Liberty Life, ‘There is evidence that South Africans are spending less and saving more. These are positive signs and analysts are recommending that consumers further diversify their investments to cushion the blow of market changes.’
This outlook is supported by recent data from the Reserve Bank and Stats South Africa, indicating that household spending declined even further in the second quarter than in the first quarter of this year. It is also encouraging that household saving edged up in Q1 of 2009 as compared to Q4 in 2008.
Information that remains cause for concern includes the continuous decline in the Gross Domestic Product (GDP) – 6.4% on quarter 1 of 2009. GDP is measured in SA based on high frequency indicators such as manufacturing and mining production, retail and vehicle sales.
Globally, the International Monetary Fund (IMF) has revised down its forecast for global growth in 2009. This reflects the decline in demand. A lack of demand puts pressure on South Africa’s export market which is already a cause for concern. However, the recovery in commodity prices as well as China resuming imports are positive events.
Though very volatile, we’ve seen a recent strengthening of the exchange rate of the rand which is good for food inflation and might also mitigate the increase in the oil prices.
Inflation has improved marginally. Inflation is somewhat sticky but the trend is downward. In its latest MPC statement the Reserve Bank indicated that inflation is forecast to fall below the upper 6 per cent of the target band by the second quarter of 2010.
Mantshimuli concludes that ‘Reviews are mixed, but South Africans can still hope that the economy will moderate later in 2009 despite certain remaining negative factors’.
