Category Economy
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Not so rosy

09 August 2006 Angelo Coppola

Professor Chris Harmse, chief economist at Dynamic Wealth, paints a gloomy picture saying that numerous actions have conspired to place pressure on the South African economy.

The trade account deficit for the first six months is higher than that for the last 12 months - now four times higher. The current account has also seen an outflow as the majority of dividends paid out in the last three years has gone to foreigners -some 60%.

He says that the country needs to be careful that there isn't a repeat of 2003 as the rand depreciated and the repo rate decreased by 9%. If this happens then the country could be headed towards a depression.

According to Harmse net foreign buying and foreign direct investments are drying up. Quarter two saw an R16bn inflow, which was down from R52bn, and just enough to finance the trade account deficit.

The country's reserves are also low. The SARB has a problem, as the July numbers were only slightly up, which could place pressure on the SARB should they need the reserves to defend the local currency, and the petrol price could well be the first casualty.

Another aspect that comes into play some is the upcoming National Credit Bill, as people will be able to purchase goods, without having to put a deposit down, and this will stimulate further spending, and place upward pressure on the inflation rate.

This is contrary to what the SARB is trying to do. They (MPC) will continue to increase as SARB struggles to keep the inflation figure in the target range, The MPC will continue increasing the repo rate until it gets the job done, as they have shown that they have the political will to do so.

Interest rate increases will lead to the country's growth being closer to 4%, and unemployment will also increase, which may well lead to increased labour unrest. A commonly quoted figure is that at its height, the country was only able to create 9000 new jobs.

Editor's thoughts:
* Its always refreshing to hear a variety of experts talk about the same subject and differ so greatly. And economists are no exception.

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