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Higher rate cut on cards

May 26 2009 13:02 Greta Steyn

Johannesburg - South Africa sank into its first official recession in 17 years in the first quarter of 2009, with a massive 6.4% collapse in gross domestic product (GDP) fuelling hopes of another 100 basis points in interest rate cuts this week.

The plunge in GDP in the first quarter follows a fall of 1.8% in the fourth quarter of 2008. A recession is defined as two consecutive quarters of declining GDP. (All figures are quarter-on-quarter, seasonally adjusted and annualised growth rates, unless otherwise stated.)

Economists said though this was probably the worst it would get in SA, another quarter of negative real growth was quite possible. Some believed the Reserve Bank would have no choice but to cut interest rates aggressively this week. The bank has already sliced 350 basis points off interest rates as fighting recession has moved to its top priority, even as inflation remains sticky at high levels.

"This figure is a shock, although we knew that mining and manufacturing were in dire straits. This should button up the case for a further 100 basis-point interest rate cut this week, with more to come. It's a brutal picture," Nedbank economist Dennis Dykes said.

He pointed out that the sectors hardest hit - manufacturing and mining - were in synch with the global economy, and their recovery would depend on what happened internationally.

Sanlam Investment Management economist Arthur Kamp pointed out that, though mining and manufacturing were hardest hit with declines of 32.8% and 22.1% respectively, the recession was broad-based, with declines in output across a range of sectors. He believed that the first quarter would be the worst in the cycle.

Stanlib economist Kevin Lings said SA was in a "severe situation". He also noted the broad-based nature of the recession, as opposed to the fourth-quarter situation, which was dominated by manufacturing. He believed forecasters had underestimated the severity of the recession because they hadn't realised how broad-based it would be.

Lings said the terrible mining performance showed SA's exports had been particularly hard hit by the global recession. This had spilled over into domestic sectors, such as finance, where banking activity had slowed significantly. Lings expected a decline in GDP of 1.5% to 2% for the full year.

- Fin24.com

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Derek
Oct 18 2009 20:24 Report this comment

We toyed with the Repo-rate upward. Nothing. Now, we're toying around with it going downward ('scuse the pun). What's happened thus far? Nothing... except that pensioners' savings are quickly being whittled away. Meanwhile, our essential services e.g. Electricity, Telecoms, Food, Fuel, Health, Education etc. keeps rising, rising, and rising fast! Correction. Prices are being raised, and being raised often! There's no respite. And no redress. They're carrying on as though we're in boomtown! Unscrupulous parastatals, corporations, and monopolies need to be curbed, and with haste, before they, and their shareholders flush what remains of our economy down the proverbial loo!

small
May 28 2009 15:46 Report this comment

The rate cut is welcome, albeit 1.5 to 2 would've been more appropriate, esp given the fact that Tito says no more cuts for the rest of 2009. The issue of the stronger rand is not all bad. The rand is the only instrument available to SA to offset the high oil prices. High oil prices combined with a weak rand would lead to high transport costs which in turn would lead to higher input costs for business and eventually higher inflation. Within the current monetary policy this mean higher rates.

WORRIED
May 28 2009 15:44 Report this comment

More and more people are being retrenched at work, more and more people are despirite for money. This can only end up bad for South-Africa. People are going to do crime to help their families. We need to come up with a plan if we want a better future for all of us.

Boerseun
May 27 2009 20:53 Report this comment

Even worse is that the Rand is strenghting way to much, putting even more pressure of RSA businesses who export.They go under, more people loose their jobs and the circle repeats itself. The only ones not complaining is the Chinese merchants flooding to RSA, who can import their cheap good even cheaper.

Cicero
May 27 2009 14:15 Report this comment

EDITORIAL. I said months ago that your website needed control & fumigation. I have not bothered with it since & am not a subscriber anymore, though I would be if you disinfected it. ALL comment should be monitored BEFORE publication as any reputable publisher would do. Surely this is not supposed to be a chat room for the intellectually challenged & the other chattering trash that infest it. Now lets see you publish that!

S
May 27 2009 12:42 Report this comment

@cjl: Why should I pay the same interest as someone higher risk? That makes no sense at all, either to me or to the bank. Sure set prime at 9%... Then all the people on prime now will be shifted to prime +2 and no-one's any better off. Banks will always lend at lower rates to lower risk clients. The whole "SUB PRIME" thing is totally unrelated to our Prime Interest rate, so people should realllllllly stop harping on about it. SUB PRIME mortgages were bonds given to people with BAD CREDIT RISK.

cjl
May 27 2009 11:15 Report this comment

S: I appeal to you to look long term: Short term gains for a FEW is what brings all the econmoic pains. You may be low risk but if we do not have a stable economy built upon more jobs small business then your short term gains have no value. At P 10 or 9% you will still be better off but you will be helping us build an economy that secures our wealth and allows many more to negotiate better rates on a sound footing individually and as a society.

cjl
May 27 2009 11:09 Report this comment

Stay Focussed: Bring Prime to 10% but preferably 9% No more sub prime; Pay pensioners 10% on savings; Stimulate small business Create jobs Reduce corporate tax by 2% Stimulate PROPER consumerism NOT MERCs & BM's or 2nd homes but buy small white goood & electrical appliances locally made. Banks lend less tha 1% from SARB, They are strong and will not fail, a little drop in their profits will not cause them to fall


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