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China slump to hit SA hard

Cape Town - Among emerging nations, China's slump is likely to have the greatest effect on South Africa, Hungary and Russia, Nomura International's emerging markets economist Peter Attard Montalto said on Wednesday.

Montalto recently made a downward revision of China's gross domestic product (GDP) forecast to 6.9% for 2014 from 7.5% this year. The reasons he gave for this were "the growing weakness in the underlying Chinese growth prospects, as evidenced in second-quarter GDP, as well as the lack of policy response to rectify the situation". 

Things could get even worse, cautioned Montalto: "... in a scenario where financial sector issues are more acute and underlying growth momentum is lost more severely, we think growth could drop to, say, 5.9%."

Nomura has identified Australia, South Korea, Hong Kong, Malaysia and Singapore as the five Asian countries which are most exposed to China’s slowdown, considering supply chain linkages.

Turning to South Africa, Montalto said the country "stands out by quite a way on all measures given a mixture of processed and unprocessed commodities exports".

Export exposure to China has been going on for a long time but thanks to China's investment boom in the second half of 2010 and 2012, the biggest surge seems to have taken place during this period, said Montalto.

"Chinese investment in South Africa has been very limited in comparison to the rest of Africa, so exports are mainly South African or by global companies based in South Africa," said Montalto.

"South Africa’s tight labour laws and investment controls, together with the fact (that) most mineral resources are already being exploited in some form by companies, have limited the ability of China to penetrate South Africa," said Montalto.
 

 
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