Daar word op die oomblik in die kerk meer gepraat oor self-ontplooiing as oor self-opoffering.-Anon.......As ‘n kerk haar woorde begin devalueer, dan word die kerk ‘n ramp vir die volk. - K Schilder

11/27/2008

Economy Storm Warning!

Ek lees die volgende in FINANCIAL MAIL van 21 November 2008:
"South Africa has been given a sharp wake-up call. The fact that two rating agencies have downgraded SA's outlook to "negative", and predictions by the International Monetary Fund of a deep and severe global recession have tipped the scales. SA has been found wanting. Can we survive this economic storm?
A hint of panic is now setting in. With the rapid deterioration in global growth and the financing environment over the past month, it is no longer possible to believe that SA will emerge unscathed.
The worst of the storm is fast approaching and will test the cracks of every country's macroeconomic construction, not least SA's. But even as economists scramble to revise down their domestic growth forecasts, there is denial among the population about how much more pain could be inflicted..."

Lees asb verder by opmerking/s...

9 comments:

Mart said...

Until now, there has been optimism that SA will remain largely unharmed, but don't be fooled: the outlook is bleak. Even if SA escapes a full recession, it will be a year or more of painfully weak growth. And there remains the risk of something worse: contagion from a teetering Eastern Europe could ignite a replay of the 1997-1998 Asian emerging markets crisis.

In all this, SA is being forced to acknowledge that its huge external vulnerability - a current account deficit equal to 7,3% of GDP or R164bn/year - is a noose tightening around its neck. When the current account (exports minus imports) is in deficit, it means SA lacks sufficient foreign exchange from exports to cover its import bill or, put differently, we spend more than we save. SA is living beyond its means and relying on foreign savings to plug the gap.

The consensus that SA will enjoy a relatively soft landing is rapidly unravelling. "Many countries not at the centre of the current turmoil will suffer terribly and tragically," said finance minister Trevor Manuel earlier this week, on his return from the G20 meeting. He warned: "SA should be under no illusions that our economy will suffer along with the rest of the world."

A few months ago, there was consensus that though household consumption would remain weak until mid-2009, (at which time falling inflation and interest rates would spur a gradual recovery), public-sector fixed investment would remain robust - enabling SA to grow at about 3% next year. Now, more economists are expecting GDP growth to be 2% or less next year, with decided downside risks.

Behind the gloomy outlook is the realisation that it is highly unlikely that SA will be able to finance a current account deficit averaging above 8% of GDP for the next few years. In recent years, the commodity boom and global liquidity glut ensured that the deficit was comfortably financed. But given the global credit crunch, recessionary environment and extreme risk aversion towards emerging markets, it is no longer reasonable to expect SA to find about R160bn/year in foreign savings to fund a deficit of this size.

Indeed, foreign portfolio outflows were R50bn in October - by far the biggest withdrawal of foreign capital in a month - while the rand has lost around 45% of its value against the dollar this year.

This means the rand will remain weaker for longer (the rand adjusts automatically to bring the balance of payments back into balance). But it also implies that government will not get all the foreign financing required to carry out its R600bn infrastructure programme - the one pillar being relied on to prop up the growth rate.

"Government will push ahead... to try to secure the financing (including accessing development funding, as we have seen with Eskom), but our worry is that, because of the difficulty of raising financing, the infrastructure programme might be delayed," says Konrad Reuss, MD of Standard & Poor's SA. Along with Fitch rating agency, Standard & Poor's downgraded SA's credit rating outlook from "stable" to "negative" last week (see story "Policy is pivotal").

There is also concern that the Reserve Bank will be reluctant to cut rates in this environment, not only because a weak rand will prolong inflationary pressures, but also because a revival in consumer spending will increase imports, worsening the current account deficit.

There is even a danger that a renewed bout of severe rand weakness could prompt the Bank to hike rates as it did in 1996, 1998 and 2001. If SA is forced to delay monetary easing and its investment plans when growth is slowing rapidly, there will be a far harder landing for the economy than is commonly envisaged.

There are three basic scenarios, according to Absa Capital's head of research, Jeff Gable.

The best case (the recent consensus): SA gets all the external financing it needs, the infrastructure programme proceeds as planned, inflation falls quickly- inviting successive rate cuts from February - and GDP growth climbs above 3% in 2009.

The base case: SA gets only some of the external financing it needs, forcing investment to slow (the current account deficit falls to around 4% of GDP), the rand weakens further and GDP falls to 2%or less next year.

The worst case: Financing disappears entirely; the rand tanks to R13/US$ to R14; the current account deficit is forced to zero as all investment, other than football stadiums, is delayed; household consumption turns negative, and growth grinds to zero next year.

"The scary thing is that the worst-case scenario is more likely to materialise next year than the best-case scenario," says Gable. Also frightening is that there is no overlap between the fraying consensus (the best-case scenario) and this new, harsher view, in which growth hits 2% or less.

The Reuters October consensus is for GDP growth to average 2,6% next year, but the Bureau for Economic Research is expecting growth of only 1,9% in 2009 because of its bearish assumptions on global growth and domestic fixed investment.

In the past, SA would have exported its way out of such a tight spot because the weak rand acts as a shock absorber, boosting exports and muting the pain of a cyclical downturn. But with half of our exports destined for industrialised countries that are expected to be in a recession, and with the collapse in commodity export prices, SA is experiencing falling terms of trade, weakening export volumes and lower national income.

All South Africans have felt strained this year because wage growth hasn't kept up with rapid inflation. For the indebted, rising interest rates have compounded their financial stress. Over the next 12 months, if the Bank does not cut rates and the economy slows profoundly, these strains will increase as jobs start to be shed.

"This will increase pressure on the new government and dissatisfaction with current economic policies, strengthening the voices clamouring for policy change," says Gable. "Equally, the voices that argue that stable economic policies are going to get us through this global environment are going to be pushed to the side."

Reuss says Standard & Poor's switch to a negative rating outlook for SA is driven by its concern over what the newly elected government's economic policy response will be in the middle of 2009, when the economic pressure will be peaking. "SA is experiencing a confluence of unfortunate events: a very tricky international environment, a big current account deficit and a political transition with pressure on the new government to deliver," says Reuss.

"If growth drops below what is expected, would we see more social pressures and unorthodox economic policy responses?"

Moody's sees things differently. It has retained its positive outlook on SA's foreign currency ratings despite having substantially downgraded its 2009 growth forecast for SA to 1,7%, from 3% previously.

Though Moody's credit officer covering SA, Kristin Lindow, warns SA to expect "something that is going to feel very much like a recession", she does not fear that policy deviations will be the inevitable result. She argues that politicians will be constrained by the markets, given SA's large current account deficit. She is also confident that inflation will come down rapidly to comfortably within SA's target range next year, "which should ease pressure from the political arena to revise the inflation target range".

This then is the counterview: that a weaker domestic economy, global recession and technical changes to the CPIX (consumer inflation less home loans) should push inflation lower in the months ahead, allowing rates to drop sooner and by more than is generally expected.

Finance DG Lesetja Kganyago says treasury started taking steps two years ago to mitigate the risk of a sudden stop in capital inflows. These included raising government savings, adopting counter cyclical fiscal policy, building foreign reserves (now worth R32bn), and extending the maturity profile of SA's external debt.

As a result, SA's external vulnerability indicator has fallen substantially since 2000. And though it has a current account deficit problem, SA does not owe considerable debt to foreign banks.

According to the IMF, SA's net external position is 4,7% of GDP, compared with Turkey's 12,2% and 267,9% in Iceland. "If we were caught in the middle of the storm and had huge current account and fiscal deficits, where would we be?" asks Kganyago. "I am convinced the steps we've taken have mitigated, though not eliminated, the risk."

Kganyago says should it become necessary, SA would be able to access the IMF's new short-term liquidity swap facility. This would give SA access to almost $14bn to smooth a balance of payments adjustment, but Kganyago stresses that SA does not need such assistance at this stage.

Kganyago is adamant that government will not postpone necessary fixed investment. "We're going to continue, but prioritise these investments, pursuing those that will add to our long-run growth potential, like power generation. We've decided not to build new government offices, but that's not going to subtract from GDP."

He says only the imported component of government's infrastructure programme (reportedly about 40% of the total) will require foreign savings for funding - the rest can be funded predominantly from domestic sources.

Treasury has urged Eskom (which is to spend R340bn over five years on infrastructure) and Transnet (R80bn) to be more aggressive in using export credit agencies and development finance institutions. Eskom is negotiating a $500m loan from the African Development Bank and a $5bn loan with the World Bank.

"We're still confident of our growth forecasts tabled only four weeks ago, which we made knowing the global environment was difficult and there would be a slowdown," says Kganyago. "Our change to 2009 GDP growth from 4,5% to 3% was a dramatic revision."

Earlier this week, Manuel reiterated that SA will not slip into a recession but stressed that for SA to meet its growth aspirations, it would require reform to attract foreign investment to finance the current account deficit. "Continuing to attract foreign investment implies the need to maintain confidence in our macroeconomic policies and raise the economic growth rate," he told the National Assemby. But, in the long run, the only way to reduce SA's dependence on foreign savings is to export more. This, he said, would require tackling the microeconomic and regulatory constraints to more rapid economic growth and avoiding bad policy choices, like raising trade barriers, lax monetary policy and indiscriminate industrial policy.

Despite the deluge of negative news, there remains enormous denial about what is coming. SA may enjoy shock absorbers - the weak rand and cheaper oil - but there will be sector pain. (See stories on "Ratings a thumbsuck", "Digging deep for hope", "Falling, but mildly", "A slimmer festive stocking", "Revival is flipping urgent", "Time to push the buttons" and "Taking a drubbing".)

As the financial crisis gives way to a global recession in the coming months, SA's GDP growth, confidence and fixed investment are expected to deteriorate further. If there is a recovery from mid-2009, it will be exceptionally weak and gradual by past standards.

Meanwhile, SA will have to hang on by its fingernails. Through its economic policy choices it will have to take care not to alienate foreign capital. This will require far more astute political management than is now being displayed.

Mart said...

En in Business Day staan daar vandag:

"Plenty of reasons why SA’s economy can tough it out.

REPORTS from overseas suggest that the negative flow of information about the global downturn has been so overwhelming that it is fuelling an even more depressed state of mind among the public.

One fears a similar state of mind could become part of the South African psyche, bringing about an even more depressed economic situation than need be the case.

There can be no doubt that the correlation between the South African and international economy has been high since the abolition of sanctions in the mid-1990s and the incorporation of the economy into a globalised world.

The corollary is that any sharp downturn globally is bound to be followed by a similar slump in the domestic economy. One should thus not underestimate the negative effect on economic prospects that the recent financial turmoil globally might inflict. Nonetheless, this simple extrapolation is probably too simplistic and alarmist, overlooking factors that might imbue SA’s economy with some resilience that prevents conditions at home from deteriorating to the same extent as those abroad.

From a short-term perspective, one must recognise that wage and salary increases being awarded for next year in the wake of the past year’s inflationary spiral are likely to be in double digits.

Such increases are likely to kick in just when inflation is falling sharply due to declining food and fuel prices. As a consequence, households might soon enjoy some breathing space with which to restore their financial balances.

Second, there is a unique element for SA’s economic prospects that has almost been forgotten in the wake of the turmoil on markets — the Soccer World Cup coming in 2010. This event helped to boost Germany’s gross domestic product by about 2% in 2006.

Although the same number of foreigners that visited Germany might not visit SA for logistical or financial reasons, SA’s economy is one-seventh the size of Germany’s, so the effect of the event here could be proportionately even greater.

From a longer-term point of view, there is also reason to believe SA’s economy might better be able to withstand the global financial storm. First, domestic financial institutions have not been directly exposed to the fallout from the overleveraged situation in which many leading global financial institutions found themselves. Although credit extension has become much tighter, there is reason to believe that the flow of finance to households and businesses will not dry up in the same way as abroad. As such, the level of business transactions need not slow to the same extent.

Most importantly, as much as the steep 25% real depreciation of the rand over the past year might be seen as a reflection of the lack of confidence in SA’s economic prospects, the currencies of other emerging markets have depreciated almost to the same extent. This has been as much a reflection of a flight out of higher-yielding currencies to the safety of the dollar and yen as it is of a loss of confidence in the domestic economic outlook. The enormous opportunities this generates for business are easily overlooked. There are already a number of instances in which domestic manufacturers are identifying opportunities to supply the local market in lieu of imports. Even though export markets are likely to be far more depressed than previously, the increased competitiveness on such markets of domestic producers should mitigate the effect of the global downturn. Furthermore, because SA’s foreign debt levels are so low relative to those of other emerging markets, the economy is not as vulnerable to an increase in foreign liabilities resulting from currency depreciation.

Ironically, there might even be some perverse benefits arising out of a loss of momentum in economic activity. Severe infrastructure constraints in areas such as electricity generation, transport and skills, are all being alleviated by a slackening off of economic growth.

One would not want to see such a situation continuing for too long, but the less frenetic pace of economic activity might provide some breathing space and allow for improved planning and implementation of projects. The pace of emigration of skills might slow because of reduced employment opportunities abroad and the increased cost of translocation.

The slowdown might also defuse the current account deficit constraint to some extent. Not only is it likely to lead to lower imports, but the substantial increase in portfolio outflows stands to reverse the sharply rising trend of dividend and interest payments to foreign shareholders, depositors and bondholders, which have contributed significantly to the widening current account deficit.

There is also a structural dimension to the rand’s depreciation, which could benefit the economy in due course. Much criticism of the structure of the economy has emanated from the fact that the rapid economic growth of recent years has not been accompanied by commensurate job creation. Some attribute this to the fact that the economy has been hampered by an overvalued currency that has contributed towards a shift away from more labour- and export-intensive sectors such as agriculture, mining and manufacturing, towards service industries. The latter have tended to be more skill-intensive in an economy that has been increasingly denuded of skills. The new-found competitiveness brought about by severe currency depreciation could just be the foreign exchange market’s way of bringing about the structural adjustment in the economy that can enhance labour intensity and employment absorption.

Despite the steep decline in commodity prices, it would be wrong to write off the potential for continued large-scale foreign investment opportunities in Africa aimed at exploiting its vast mineral and agricultural wealth potential. Indeed, the huge stimulus currently being provided by the world’s economic authorities to try to rescue the global economy from a deeper recession, could come to haunt them . There is a realistic possibility that the forthcoming phase of economic weakness could be followed by an inflationary surge in commodity prices as the global economy revives in response to the stimulus and the postponement of many projects that were aimed at increasing the supply of natural resources.

Many see the massive decline in commodity prices of recent months as signalling the end of a protracted phase of rising commodity prices driven by underlying demand from China and other emerging markets. They fail to recognise the extent to which the huge commodity price declines have entailed large-scale unwinding of speculative bull positions rather than necessarily constituting a reversal of the more fundamental supply/demand situation.

In conclusion, there can be no doubt that the South African economy stands to experience its weakest growth in a decade. However, to indulge excessively in this scenario can run the risk of needlessly promoting the cancellation of vital infrastructure investment and other business projects that remain crucial to the sustenance of longer term economic progress.

One can detect an excessive focus on the negatives without recognising the new business opportunities that have been thrown up by recent events. A classic example of this has been the reaction to the downward revision of the outlook for SA’s credit rating by two leading credit-rating agencies. Many interpreted this downward revision in the outlook to constitute an actual downward re-rating of the country’s credit rating itself, which was not the case.

SA does not stand to experience large-scale sale of its assets by foreigners, which might have resulted from a downward revision of the actual credit rating. One suspects that the rating agencies merely wanted to hedge their bets not only on SA’s economic outlook, but on the other six emerging market economies that were simultaneously assigned a downward revision of outlook for credit rating.

It is inadvisable to adopt a Pollyanna approach to the impending economic downturn, but likewise one can let it dominate one’s perspective to an extent that can aggravate the situation. Let us not talk ourselves into a domestic recession that is not inevitable.

**Dr Jammine is director and chief economist at Econometrix."

Michael said...

Uit al hierdie baie woorde is daar een wat my opgeval het..."Denial"... en ek het nog altyd gedink dit is 'n revier in Egipte.

Dit is goed om hieroor te begin dink. As ons ernstig daaroor moet wees dan is dit duidelik dat die besluite en gedagtes oor die saak net soveel sin maak soos 'n seep opera. Die kenners het hulle eie kritiese posisie al reeds so verwater deur populêre en populistiese uitsprake dat hulle nie meer kan opstaan en sin praat nie.

Met hierdie soort insette van die kundiges en leiers kan 'n mens algemene verwarring verwag. Dit gaan op die ou end verwarring wees wat die meer vernietigende effek gaan hê. Verwarring gaan voort duur tot dat daar konstukte op die tafel gesit word wat iets met die werklikheid te doen het.

So, ek dink nie dit is "denial" nie maar wel "confusion".

Groete,
Michael
P.S. 'n Humanis kan nooit erken dat hy "confused" is nie, want dan breek hy sy eie tempel af.

Mart said...

Hierdie deel maak mens bang:

"...The worst case: Financing disappears entirely; the rand tanks to R13/US$ to R14; the current account deficit is forced to zero as all investment, other than football stadiums, is delayed; household consumption turns negative, and growth grinds to zero next year..."

Mart said...

Dalk is daar in hierdie tydperk te veel gefokus op die finansiële stelsel en te min op die ineenstorting van die huismark in die VSA (en elders), wat die kern van die krisis is.

Huispryse het verder gedaal, met die mediaanprys in Agustus 9,5% laer as 'n jaar gelede, en die konstruksie van nuwe huise het verder afgeneem tot die laagste vlak in 17 jaar.

Die verswakking in die huismark tesame met die deurlopende heraanpassing van subprima-verbande het die verliese van finansiële instellings vererger, meer as gevolg van hul blootstelling aan gestruktureerde finansiële produkte gerugsteun deur verbandskuld as weens regstreekse blootstelling aan wanbetalers.

Dit is duidelik dat huispryse nie gou gaan herstel nie, met die voorraad onverkoopte huise wat blykbaar gelykstaande is aan 10.4 maande se verkope.

Henrietta said...

Hehehe, Michael, jy's weer op jou stukke, he? Ek dink ook "confusion" is die saak, eerder as "De Nile"...

Waar mens ookal lees of luister: soveel siele, soveel sinne. Ek het vanoggend op gister se Sake-Beeld se agterblad gelees hoe een kommentator beduie van hoe goed die slegte eintlik kan wees. Ek kan onthou hoe my kinders (vyf van hulle nogal!) iewers in al die vakke geleer het hoe goed al die boikotte vir SA was, hoe dit ons geleer het om selfstandig as 'n land te bestaan , ens ens.

EN dis nog 'n Bybelse boodskap ook : Werk alles nie uiteindelik mee ten goede nie, vir dié wat God liefhet?

Een van my gunsteling versies in die Bybel was nog altyd 1 Tim 6:17 - om nie 'n mens se hoop te vestig op die ONSEKERHEID van rykdom nie... en hoe waar blyk dit nie in vandag se dae te wees nie!!

Mart said...

Ek en 'n vriend het hierdie onderwerp vanoggend bietjie bespreek en ek sê toe vir hom ons moet net altyd ook onthou:
When there's blood on the streets, the rich go shopping...

Groete
Mart

Mart said...

Die ekonomiese eenheid van Investec verwag blykbaar dat ekonomiese groei in die volgende aantal kwartale nie aan die verwagtinge sal voldoen nie weens die swakker vooruitsigte vir die Suid-Afrikaanse en wêreldekonomie.

Investec sê hulle verwag egter nog ’n groeikoers van 3% vir vanjaar, maar ’n aanmerklike verlangsaming tot minder as 2% aanstaande jaar. Van die derde kwartaal van aanstaande jaar behoort die groeikoers te herstel.

Die ekonomiese eenheid van Nedbank is van mening dat sektore wat afhanklik is van die wel en wee van verbruikers in toenemende mate geraak sal word deur ’n daling in die vraag van huishoudings.

Nedbank se ekonome meen egter dat vaste investering lewenskragtig sal bly vanweë die voorbereidings vir die Wêreldbeker-sokkertoernooi in 2010 asook die uitbreidings van Transnet en Eskom.

Dit behoort die konstruksiesektor asook die groeikoers aanstaande jaar te stut.

Nedbank verwag vanjaar ’n ekonomiese groeikoers van 3,2%, maar ’n verlangsaming tot 1% aanstaande jaar.

Die ekonome is dit egter eens dat die verlangsaming in groei genoeg ruimte skep vir ’n verlaging van rentekoerse.

Nedbank verwag die eerste verlaging van rentekoerse in Februarie aanstaande jaar en Investec meen dat rentekoerse in April verminder sal word.

Daar word verwag dat ’n skerp daling in die inflasiekoers gaan plaasvind. Teen einde aanstaande jaar kan die inflasiekoers dalk nader aan 3% as 6% wees.

Dit sal lei tot skerp dalings in rentekoerse en rentekoerse kan aanstaande jaar weer dieselfde wees as die gemiddelde rentekoers van 2006.

Michael said...

Hallo julle,

Ek het die antwoord net vanoggend gekry! Die rede hoekom daar so 'n krediet krises in die wêreld en veral die ontwikkelende wêreld is...

Dit is baie eenvoudig gerig op die groter demografiese krises waarop hierdie ekonomiese krises gerig is. Die rede is dat die konings van hierdie wêreld het agter gekom dat al die welvaart veroorsaak dat mense nie meer kinders kry nie en dit veroorsaak dat ekonomië gevaar staan om oorgeneem te word deur 'n massa mense vanuit die ontwikkelende lande.

Vir hierdie standpunt van my het ek die volgende klinklare bewyse om op die tafel te sit.

Britons 'saving money with sex'

"As the credit crunch bites, Britons may be turning to sex as a cheap way to pass the time, a charity says.

A YouGov survey of 2,000 adults found sex was the most popular free activity, ahead of window shopping and gossiping."
http://news.bbc.co.uk/2/hi/health/7755315.stm

Daar het julle dit, as die krediet krises enigsins langer as 6maande gaan duur het die Britte 'n volgende "baby boom" op hande. Halleluja, die banke kan selfs 'n land se demografie beheer... Die vraag is net wie beheer die banke. Ek weet wie... Hy IS die Koning van die Heelal.

Groete,
Michael
P.S. Mag al die Britse kondome gaatjies in hê!