Pr⊕phet
10-07-2008, 06:53 AM
...well things arn't well off for those who arn't either in power or in the middle to upper class.
http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A799447
Economics Editor
THE treasury moved yesterday to dispel any concern that the economy may be on the verge of its first recession in 16 years, saying this assessment was both “premature” and “alarmist”.
Global rating agency Moody’s Investors Service raised eyebrows this week with a warning that sliding business and consumer confidence suggest the local economy would “veer towards a recession” late this year.
The last time SA’s economy was mired in a recession — which technically means two successive quarters of contracting output — was in 1992, when it fell by an annual rate of 0,9%.
“Talk of a recession is not just premature but alarmist — and it’s not backed by data,” treasury director-general Lesetja Kganyago told Business Day.
SA’s economy has expanded by an average rate of 5% over each of the past four years, but soaring inflation, rising interest rates and power outages have begun to take a toll on output.
An economic recession is more worrying than a slowdown because it means investors will not risk their money, making a recovery much more difficult.
Kganyago acknowledged that the global environment was “very uncertain” and consumer spending, the economy’s main growth engine, was slowing.
But he said that government spending on infrastructure and high commodity prices would help cushion SA’s economy from the global slowdown — a view shared by many other analysts.
Rival rating agency Standard & Poor’s (S&P) — which is usually more cautious than Moody’s — does not believe a recession is on the cards for SA.
“We are forecasting a growth slowdown, not a recession,” said S&P analyst Remy Salters.
At this stage, SA was not too exposed to the global growth slowdown as its economy’s main drivers were internal, he said.
Moody’s has revised its forecasts for economic growth in SA down by one percentage point for this year and next, to 3,2% and 3% respectively. But this is not out of line with market consensus, which puts economic growth at 3,4% for both years.
Kganyago would not be drawn on whether the treasury would revise its forecasts for growth of 4% this year and next, when it unveils its medium-term budget statement in October. “I can say with confidence that when we get to that time we will not stand up and say this economy is heading for a recession. It’s not possible.”
Most economists appear to agree, although there are a few prominent analysts, including FNB chief economist Cees Bruggemans, who concur with the warning from Moody’s.
Standard Chartered’s regional research head for Africa, Razia Khan, gave the risk of recession a 5%-10% probability, but “even that seems dramatic”.
Growth was unlikely to slow below the 2,1% level seen in the first quarter of this year which was mainly due to the effect of electricity outages on mining, she said. That was a 6˝- year low.
There would probably be a further slowdown in household consumption, caused by higher interest rates, she said.
But this would be balanced by the sharp rise in government spending and job creation in construction.
“It may not be enough to compensate fully for weaker consumption but it should be enough to prevent a full-blown recession,” Khan said.
Construction is booming and has clocked up double-digit growth for the past four years. More importantly, both state and corporate investment is rising rapidly, in a trend which will reduce the economy’s dependence on household consumption and will boost its growth potential.
“The R-word still remains a swear word,” said Brait economist Colen Garrow. “I agree that the economy will slow this year but I can’t see it falling into a recession.”
Garrow said some key sectors — such as manufacturing and retail sales — were probably already in a recession, due to the rising cost of inflation and slowing global and local demand. Together they accounted for about 30% of the economy but their decline would not spark a wholesale slump, he said.
Manufacturing output fell 1% in the first quarter of this year. Surprisingly, retail sales accelerated but a consumer confidence survey last week suggested this sector may also contract as higher interest rates continue to feed into the economy.
House prices took their biggest dive in 15 years in May, falling by a “real” (inflation excluded) rate of 6,3% versus the same month last year. This is significant as consumer inflation is about 11%. Vehicle sales — also sensitive to interest rates — are plunging, after slowing last year for the first time since 2002.
The Reserve Bank has raised lending rates by five percentage points in the past two years in a bid to curb inflation sparked by rising food and oil prices — both global trends.
A global credit crunch sparked by the US subprime mortgage crisis has hit the world’s biggest economies, curbing growth in both the US and Europe to less than 1% in the first quarter of this year.
“We are in the middle of a global storm but we have not been unaware of this and we have prepared for it,” Kganyago said. “It arrived sooner than anyone had expected but ... we took difficult decisions at the time we had to.”
http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A799447
Economics Editor
THE treasury moved yesterday to dispel any concern that the economy may be on the verge of its first recession in 16 years, saying this assessment was both “premature” and “alarmist”.
Global rating agency Moody’s Investors Service raised eyebrows this week with a warning that sliding business and consumer confidence suggest the local economy would “veer towards a recession” late this year.
The last time SA’s economy was mired in a recession — which technically means two successive quarters of contracting output — was in 1992, when it fell by an annual rate of 0,9%.
“Talk of a recession is not just premature but alarmist — and it’s not backed by data,” treasury director-general Lesetja Kganyago told Business Day.
SA’s economy has expanded by an average rate of 5% over each of the past four years, but soaring inflation, rising interest rates and power outages have begun to take a toll on output.
An economic recession is more worrying than a slowdown because it means investors will not risk their money, making a recovery much more difficult.
Kganyago acknowledged that the global environment was “very uncertain” and consumer spending, the economy’s main growth engine, was slowing.
But he said that government spending on infrastructure and high commodity prices would help cushion SA’s economy from the global slowdown — a view shared by many other analysts.
Rival rating agency Standard & Poor’s (S&P) — which is usually more cautious than Moody’s — does not believe a recession is on the cards for SA.
“We are forecasting a growth slowdown, not a recession,” said S&P analyst Remy Salters.
At this stage, SA was not too exposed to the global growth slowdown as its economy’s main drivers were internal, he said.
Moody’s has revised its forecasts for economic growth in SA down by one percentage point for this year and next, to 3,2% and 3% respectively. But this is not out of line with market consensus, which puts economic growth at 3,4% for both years.
Kganyago would not be drawn on whether the treasury would revise its forecasts for growth of 4% this year and next, when it unveils its medium-term budget statement in October. “I can say with confidence that when we get to that time we will not stand up and say this economy is heading for a recession. It’s not possible.”
Most economists appear to agree, although there are a few prominent analysts, including FNB chief economist Cees Bruggemans, who concur with the warning from Moody’s.
Standard Chartered’s regional research head for Africa, Razia Khan, gave the risk of recession a 5%-10% probability, but “even that seems dramatic”.
Growth was unlikely to slow below the 2,1% level seen in the first quarter of this year which was mainly due to the effect of electricity outages on mining, she said. That was a 6˝- year low.
There would probably be a further slowdown in household consumption, caused by higher interest rates, she said.
But this would be balanced by the sharp rise in government spending and job creation in construction.
“It may not be enough to compensate fully for weaker consumption but it should be enough to prevent a full-blown recession,” Khan said.
Construction is booming and has clocked up double-digit growth for the past four years. More importantly, both state and corporate investment is rising rapidly, in a trend which will reduce the economy’s dependence on household consumption and will boost its growth potential.
“The R-word still remains a swear word,” said Brait economist Colen Garrow. “I agree that the economy will slow this year but I can’t see it falling into a recession.”
Garrow said some key sectors — such as manufacturing and retail sales — were probably already in a recession, due to the rising cost of inflation and slowing global and local demand. Together they accounted for about 30% of the economy but their decline would not spark a wholesale slump, he said.
Manufacturing output fell 1% in the first quarter of this year. Surprisingly, retail sales accelerated but a consumer confidence survey last week suggested this sector may also contract as higher interest rates continue to feed into the economy.
House prices took their biggest dive in 15 years in May, falling by a “real” (inflation excluded) rate of 6,3% versus the same month last year. This is significant as consumer inflation is about 11%. Vehicle sales — also sensitive to interest rates — are plunging, after slowing last year for the first time since 2002.
The Reserve Bank has raised lending rates by five percentage points in the past two years in a bid to curb inflation sparked by rising food and oil prices — both global trends.
A global credit crunch sparked by the US subprime mortgage crisis has hit the world’s biggest economies, curbing growth in both the US and Europe to less than 1% in the first quarter of this year.
“We are in the middle of a global storm but we have not been unaware of this and we have prepared for it,” Kganyago said. “It arrived sooner than anyone had expected but ... we took difficult decisions at the time we had to.”