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Analyst: Second recession not on horizon

Aug 14 2011 10:11 Mari Beukes

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Johannesburg - No, a second recession is not on the horizon and South Africans can possibly benefit from volatility in the global economy.

FNB chief economist Cees Bruggemans said that South Africa as a whole could derive benefit from the uncertainty arising from the debt crises in America and Europe.

Bruggemans said the rest of the world's problems had caused the rand to trade in a stronger range, and this could be to the advantage of South African households.

“People can import more and improve their real income as a strong rand is a more important buffer against inflation.

“A stronger rand can also help to keep interest rates low for longer.”

A stronger rand tends to fend off inflation because it makes products that South Africa imports – such as oil – relatively cheaper.

The oil price has recently been under pressure because of fears of declining global demand for the commodity.

Together with a stronger rand this decline could bring South Africans relief at the petrol pump.
Bruggemans said higher commodity prices can also boost South Africa's revenue.

“The higher prices of gold, platinum, iron ore and coal allow not only the mining houses but also their suppliers to share in a windfall of higher revenues.”

Nedbank senior economist Nicky Weimar said these price increases unfortunately ought to be only temporary.

“The increase in the gold price is being driven by fear and can very quickly turn around. It may bring short-term relief to some mining companies, but they cannot set their budgets and future planning accordingly.”

Weimar said slower economic growth in the rest of the world will put pressure on South African exports and thus harm mining and manufacturing.

Gina Schoeman, Absa Capital’s chief economist for South Africa, said consumers are nevertheless still doing well.

“If people believe that they are not going to lose their jobs, and they start to believe that the petrol price can fall and that interest rates will not increase as anticipated, that will see South Africa through.”

fnb  |  absa  |  sa economy  |  markets  |  unemployment
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