SA reeling on economic front

Johannesburg - Weak corporate results and dire economic data released this week show SA is in the midst of the global financial tempest.

Statistics South Africa (Stats SA) announced on Tuesday that 179 000 jobs have been lost in the first quarter.

On the same day, two commercial banks downgraded their earning forecasts. FirstRand announced Rand Merchant Bank's (RMB) headline earnings were expected to fall by up to 33%, while Absa expects its headline earnings to drop by 25%. The banks warned that their clients faced tougher than expected financial conditions.

Eskom's proposed 34% tariff hike, on which the National Energy Regulator of South Africa is to make an announcement on Thursday, will place additional pressure on households and businesses.

"We can't avoid what's happening to world trade and the consequent drop in demand," said Pioneer Financial Planning's Bryan Hirsch. "We're seeing everything we expected - corporate failures and rising unemployment; it's the noise of what we expected to happen in light of the financial crisis."

Goolam Ballim, chief economist at Standard Bank, echoed Hirsch's comments. However, he added that "a recovery, albeit meek, is on the cards".

According to Ballim, households will be forced to sort out their personal finances, which will help banks onto sturdier footing.

Market consensus is that an interest rate cut will be announced on Thursday by South African Reserve Bank governor Tito Mboweni in an attempt to decrease inflation and encourage consumer spending.

"There are signs that the various sectors are becoming more stable; we have to celebrate that the global recession is fading in momentum," said Ballim.

- Fin24.com