SA won't escape world recession

Johannesburg - There is not a long-term solution to the global crisis other than a lot of pain, and if the world does go into a recession or depression, South Africa "won't escape", says chief economist from Econometrix, Dr Azar Jammine.

While Jammine expects a protracted period of sluggish economic growth, when looking at Wall Street's sudden drop of over 500 points last night, he says the possibility of a further crash in the short term cannot be ruled out and 2009 could turn out to be the worst year economically since the 1920s if that scenario does play out.

Jammine says while South Africa's economy will not do as badly as developed ones will, it won't escape and he sees potential slower growth of around 3.5% dipping to as low as 1% or 2% in 2009 in a depression scenario.

"SA GDP growth is correlated to world GDP growth," he notes. "All of us will suffer to some extent, but it will be a little better than in the developed world," he said.

"Forget politics, the driving force is going to be what happens internationally," says Jammine.

He pointed out that the rand had suddenly reversed to over nine to the dollar overnight as risk aversion continued and said: "It is a very worrisome time".

However, he pointed out that the rand's overnight fall was "predictable" as the relationship with the Dow of late has been 1:1.

"I have never seen anything like this in the 40 years I have been involved," he added.

He said current sustained volatility was "quite frightening". "It is different from what we are used to."

Jammine said while a bounce could have been expected after the bailout news, he was now more concerned about a further crash as long-term price-earnings ratios are only on their historic averages, rather than well below them. There was thus a possibility prices could drop 30% or 40% in the next few weeks before hitting a bottom.

Jammine says he is not sure which scenario is better: slow agony or a sudden hit.

- I-Net Bridge