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SA is still in the middle of the pack

10 May 2006 Angelo Coppola

Johann Els OMAM SA economist says that the country is far more resilient to the possibility of some emerging market turmoil, than it was given credit for previously.

He says that there are a couple of reasons for the continued resilience. The fundamentals are all in place. SA has a large current account deficit, although this is not the case when compared to its own history, and not out of line when compared to other emerging markets.

Although he did mention that it the current account deficit - has moved, although the high commodity prices and strengthening rand have masked the deficit. It also appears that the capital inflows are also flying into the country, andthe SARB is buying up currency and financing the deficit.

Added to which the deficit is still comfortably financed although there are some risks, including a drop in commodity prices and a potential infrastructure boom, coupled with a possible emerging markets crisis.

On the other hand the economic fundamentals are much improved, including the current inflation environment, a budget deficit and the countrys growth prospects.

He also put in perspective the fact that the country is not in the 60's where there were low and stable interest rates, low inflation and steady growth. The country is not in the 80's either which were epitomized by the boom and bust cycles, high inflation and slow growth.

The fact is that the country is no longer marginalized, and there are conservative and market friendly policies in place. SA has moved through the painful part of the re-entry into the global space.

He did mention that there are still some mind shifts that need to be made, including the fact that low inflation is here to stay. The countrys inflation rates have improved as have the rest of the world.

Added to which and just as importantly the rand is no longer a one way bet weaker, and the historical balance of payments constraints are no longer as serious.

Turning to car sales the trend has continued rising some analysts say a bust is coming, although Els says that we are moving back to the 1960s scenario.

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