/ 23 January 2009

‘Global recession tentacles are reaching SA’

The tentacles of the deepening global recession are reaching Africa’s largest economy, which is at risk of slipping into recession in 2009, according to Moody’s Economy.com.

The economists say that South Africa’s retailing sector looks set to remain depressed in the medium term while private consumption, previously a key driver of the economy, will provide a much smaller contribution to growth in 2009.

“Even if South Africa manages to sidestep a recession this year, the environment will be recession-like as the economy is pushed to the brink by tight borrowing conditions, rising unemployment, and weak confidence,” they say.

Moody’s Economy.com says that the combination of slowing domestic and external sales and tight borrowing conditions has already taken a toll on South African businesses, forcing some firms to rein in production and investment spending and to trim workforces.

“The unemployment rate is expected to rise in 2009 amid increasing layoffs in manufacturing, mining and construction. Retailers and service providers are also likely to reduce hiring in coming months in response to slowing domestic consumption. Adding to South Africa’s woes is the sharp slowdown in the housing market,” they say.

The economists say that house prices are expected to decline in 2009 and transaction volumes will sag, as low affordability and concern about future income streams curb demand. Tight credit is also curbing activity in the residential and commercial property markets.

The outlook for exports, which make up more than a quarter of the economy, is also bleak.

“Most of South Africa’s main export markets are in recession themselves, including the United States, Japan, and most of Europe. The country’s export sector is highly dependent on commodities, with precious metals, base metals and minerals accounting for well over half of revenues in recent years. Commodity exporters such as South Africa will continue to face low prices and weak foreign demand,” conclude the economists. – I-Net Bridge