Economy 'set for recovery'
2009-04-23
THE good news every South African economist, investor and market commentator has been waiting for, since the start of the economic slowdown in 2008, has finally arrived. The bearer of the good news was Dr Roelof Botha, economic advisor to PricewaterhouseCoopers (PwC), during his keynote address at the 2009 Agri Cape Week in Paarl. He stated in no uncertain terms that trends in several key global and domestic macro-economic indicators “are underpinning prospects for a swift recovery of economic growth in South Africa.” An unprecedented increase in gross national income in high-income countries over the past 15 years is providing government with ample fiscal leeway to implement policies aimed at countering the effect of the financial crises. In South Africa the Consumer Price Index (CPI) is expected to fall within the 3% to 6% target range by the middle of the year. “Rapidly declining inflation will gradually enhance the purchasing power of households for the rest of 2009. This will help in fighting the effects of inflation,” says Botha. Interest rates are in a steady downward trend and will provide considerable relief to households burdened with debt. According to Botha, the prime rate is expected to drop to 11,5% “and if this happens the disposable income of households will increase by approximately R7 billion per month.” The South African government medium-term infrastructure programme of R1 trillion is also expected to lead the continuation of the country’s largest broad based capital formation phase in history. A modest recovery of commodity markets is another contributing factor to the recovery and local exporters should benefit from it in the months ahead. The recent strength in the rand has raised a few eyebrows. It performed remarkably well in the midst of the global instability. The rand is currently at its strongest levels in ten years and this indicates a possibility of further interest rate cuts. Certain contributing factors that are driving stronger economies down, are playing into the hands of emerging market economies, like South Africa, that possess fundamental macro-economic stability. Even though some avenues for investments have dried up, fund managers are still receiving vast amounts of contractual savings mainly from pension fund contributors. Global capital markets and investment banking industries are finally recognising the need for significantly enhanced levels of transparency, particularly in regards to high-risk collaterised debt instruments. Even in the face of global economic instability and while some of the avenues for investments have dried up, international fund managers are still receiving vast amounts of contractual savings on a monthly basis. Botha says, “Two examples that illustrate this are Credit Default Swaps (CDS) and Asset-Backed Securities. The latter involves assets with a monthly revenue stream that originates from the repayment of housing loans, vehicle instalments and credit cards.” The market for asset-based securities in the US has virtually collapsed. According to the American Securitisation Forum, $863,6 billion of such securities were issued in 2007. In 2008, this figure drastically fell by 81%. By the first quarter of 2009, it fell another 95%. While developed countries like the US are still suffering in the doldrums, it seems that there are even more factors supporting South Africa’s recovery in 2009. In conclusion, Botha mentioned that South Africa’s popularity as a destination for direct and portfolio investments was growing due to major planned sports events.
More
News
|
