2,5% Growth Expected for SA in 2010

The information in this article is courtesy of Mail & Guardian Online (Economy to see 2,5% growth in 2010 – 14 May 2009)

Ettienne Le Roux, senior economist at Rand Merchant Bank recons that South Africa’s economy might see up to 2,5% growth in 2010.

Le Roux announced this prediction while he was addressing the Steel and Engineering Industries Federation of South Africa’s annual conference in Johannesburg where he added that this figure should not be considered a bad performance.

Le Roux explained that the many “shock absorbers” that the country has in place won’t prevent a recession. These shock absorbers included a flexible rand exchange rate, counter cyclical policies, lower inflation, a social safety net, falling interest rates and infrastructure spend – all things that will allow South Africa to recover around the end of 2009 into 2010.

Le Roux said that leading up to the global financial crisis, the world had been in a bizarre state of stable disequilibrium and the surplus countries had allowed funds to flow into the deficit countries. Also, inflation was low and policy makers were complacent and there was a reduction in risk aversion. All of this, according to Le Roux was a breeding ground for problems.

"Interest rates had to go up and the rest is history," he said. He added that South Africa had enjoyed a boom period in 2003 where it imported more than it exported, resulting in a huge current account deficit.

He noted that both inflation and rates were low resulting in unsustainable spending, a rise in inflation and the monetary policy tightened.

This also led to the property bubble bursting and assets on balance sheets devaluated. Because the banks had problems they didn’t lend – a scenario where the economy can’t grow. Stimulus packages by governments, however, prevented a great depression. Le Roux explained that instead we have a recession in 2009.

"When there is a global upswing, South Africa tends to outperform global growth, but when there is a global downturn, we tend to under perform global growth."

He added that being a deficit country, meant that we suddenly no longer look attractive. Mining and manufacturing has been severely hit and because the consumer matters when it comes to our country’s economy, South Africa is now also suffering from a slow demand.

According to Le Roux this means that we need to get the consumers going if we want to restart the economy. He added that banks are not lending easily at the moment but once the economy stabilized we can expect banks to ease lending criteria.