While it is true that South Africa hasn’t experienced the full effects of the global financial crisis yet, most economists say the South African economy is deteriorating. Economic activity has slowed down considerably, consumer spending has declined and the country’s export industry is under financial stress.
Finance Minister, Trevor Manuel, admitted that South Africa’s growth rate had deteriorated sharply when he delivered his 12th annual budget speech on 11 February 2009. “With commodity prices generating lower export earnings, weak consumer spending and slowing private sector investment, growth in 2009 is forecast to be 1.2 per cent, the lowest rate since 1998,” Manuel said. His speech came only a week after Tito Mboweni, South Africa’s Reserve Bank Governor, predicted that South Africa – Africa’s biggest economy – would go through “a rough patch for the next three to four years.”
However, Manuel seemed optimistic, saying that he expected output growth to improve in 2010, supported by the R787 billion public infrastructure spending, lower interest rates, the 2010 FIFA World Cup and a recovery in the world economy. “But trading conditions are tough and are likely to deteriorate further in the short term,” he said. Some economists also reckon South Africa will follow its trading partners in America, Europe and Japan into a recession.
Manuel added that in comparison to the rest of the world, the banking sector in South Africa is sound. “Nevertheless, it is incumbent on us to remain vigilant, to sharpen our regulatory oversight and to work with banks to identify any potential problems early and deal with them decisively,” he explained. He also warned that even though the South African bank system is sound, it is still affected by deteriorating credit conditions.
Let’s look at how the global recession has affected S.A in 2008 and how it will affect it in future.
South Africa’s Economy (2008 – 2009)
According to Trevor Manuel, in 2008, South African producers were affected by a series of economic shocks including electricity shortages, rising input costs, higher interest rates and slowing demand. “This led to a marked slowdown in consumer-oriented sectors and weak mining and manufacturing output. Several sectors, including mining, manufacturing, retail trade and residential construction, have retrenched workers and the pace of job losses may accelerate further,” he elaborated.
The Bad
- The platinum price has fallen by about 60 per cent
- Lower consumer demand and the softer real exchange rate will dampen import demand in 2009.
- Retail sector is slipping into a recession because people aren’t buying cars and, household appliances and furniture.
- An estimated 74 000 people lost their jobs in the third quarter of 2008, more job losses are expected in 2009.
- Investment spending by the private sector has dropped to 2.6% compared to 11.1% in 2007 and is expected to drop further in the next 18 months.
- The Rand’s depreciation will increase the cost of imported goods.
- South Africa’s exports have slowed down.
The Good
- Civil construction has performed well, supported by ongoing infrastructure investment. Continued infrastructure spending may strengthen the economy and create more jobs.
- The agricultural sector has grown strongly in response to higher prices and better rains.
- Interest rates are expected to keep falling and inflation may drop to 6% this year.
 |
