More gloom on the cards?

Johannesburg - A leading economist has predicted that South Africa's Gross Domestic Product (GDP) growth is likely to be 3.5% this year and 2.5% during 2009 - and this is on a best-case scenario.

This is according to Sanlam Investment Manager economist Arthur Kamp, who believes a world recession is on the cards.

Referring to his predictions and economic data that he has reviewed, he said: "These figures mask a sharp near-term slowdown, and that third-quarter growth numbers are likely to surprise on the downside."

Kamp believes that the South African economy is likely to be hit by a global slowdown in corporate spending. The economist said: "In another sign that things are likely to get a lot worse before they get better, corporate spending is already slowing down."

Grim sequel

Kamp points to contraction in business spending in the US, Italy, Spain and even Germany and France and believes that there will an increase in capital project delays. This, he said, will ultimately be followed by rising unemployment.

Already many firms in South Africa have begun cost-cutting measures including job cuts and freezes. The concern is that these measures are taking place despite government's intention to push for growth of 5%-6%.

With a global recession scenario and less demand for many of the commodities coming out of South Africa, this situation does not look positive.

A number of economists have pointed out over the last few weeks that an economic turnaround will only occur once household and consumer debt is brought under control, and when consumers begin to improve their savings habits.

Many of the structural financial problems with regard to the 'credit crunch' stem from consumers spending any and all credit available to them.

Pain before gain

Kamp says developed markets will have to go through a painful period of recapitalisation and de-leveraging. He also says that the US housing market will need to stabilise, with delinquencies peaking and housing inventory levels declining.

However, as the consumers in the developed world begin to improve their hard cash resources this will lead to an eventual economic rebound.

This was a theme echoed by Ashburton global strategist Peter Lucas earlier this week.

He believed that rebuilding of personal balance sheets was imperative for the developed world.

For this reason, Lucas believed that Asian countries, where savings are traditionally high, would rebound quicker than the US, which has become a highly credit-driven economy.

Hard cash and unleveraged personal balance sheets seems to be the order of the day, irrespective of which economy you trade in.

- Fin24.com