Mariam Isa
7 October 2008
Johannesburg — SA's financial sector is still well shielded from direct fallout from the global credit crisis, but the economy may battle to maintain robust growth next year as several of its main trade partners slide into recession.
Tumbling commodity prices will erode the value of exports while rand weakness will raise the cost of official infrastructure plans that are critical in keeping growth on track.
These factors will complicate plans by a new government to deliver on pledges when it takes office next year - even though SA's economy is likely to weather the global storm better than many others.
"I don't think SA's economy will suffer to the same extent as the rest of the world," Econometrix chief economist Azar Jammine said yesterday.
"But the big challenge faced by a new administration will be to manage it in a less favourable global environment."
Jammine believed that SA could still notch up a growth rate of 3%-4% both this year and next, well below the average pace of more than 5% in each of the past four years.
He thought consumer spending, still the economy's main growth engine, would start to rebound next year as interest rates began falling and double-digit pay hikes kicked in.
But the rand's dive to nearly R9 to the dollar yesterday - its weakest in nearly six years - will raise the cost of ambitious private and public sector investment plans .
It will also cloud the inflation outlook, eroding benign effects of lower food and oil prices and making it likely interest rates will stay higher for longer than local markets expect.
These side effects of global financial turmoil are likely to curb, but not sabotage, the rapid pace of investment seen as crucial to expanding the economy's growth potential.
Nedbank economist Nicky Weimar said: "There is huge global fallout. The downswing is now well and truly under way and is spreading to more sectors than initially thought.
"It makes sense to consider fixed-investment plans going forward now that the environment has changed quite badly."
A sharp slowdown in sales of heavy vehicles and cement, along with residential building plans, suggested private sector investment had lost momentum. That was expected to curb growth in overall fixed investment to 7% next year, down from 12% this year and nearly 15% last year, she said.
But Nedbank still believed the economy would grow 3,5% this year and 3,1% next year. Government plans to spend more than R500bn on electricity, transport and sports infrastructure in the next three years should stay on track, although the price tag would rise as a weaker rand make capital imports more expensive.
That would eat up whatever remained of forecast budget surpluses in the next few years, or lead to higher deficits, with slowing tax revenues and exports also affecting the balance negatively.
"The upside is because of fiscal conservatism there is a buffer, but it can disappear rapidly in hard times," Weimar said.
Citigroup economist Jean-Francois Mercier is a bit more downbeat on SA's growth outlook, due in part to its deteriorating terms of trade.
"I'm not too worried about growth this year, but in 2009 we might not make 3%," he said.
Prices for platinum, which SA leads the world in producing, fell 36% so far this year.
Brait economist Colen Garrow is more upbeat. He sees the economy growing about 4% next year. But he warns global risk aversion may weigh on the rand with foreigners selling R11,2bn net in local shares and bonds so far this year after buying a net R75bn in the previous corresponding period.
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