Treading financial water

2012-12-30 10:00

Maya Fisher-French explains why 2013 is not going to be a prosperous new year

Scenario guru and former head of Anglo American’s gold division, Clem Sunter, recently said the current economic conditions were the worst he has ever experienced.

Sunter says there is a 40% chance the world will enter a period of “hard times”, meaning the global economy will show very little growth over the next 10 to 15 years.

The International Monetary Fund (IMF) believes only 60% of the world’s employable population have jobs and 24?million people have lost theirs in the past three years.

So, indications are that 2013 is not going to be a prosperous new year.

The US seems to be showing signs of a recovery, with unemployment falling to its lowest level since 2008.

But it faces potential political and fiscal fallout over the so-called “fiscal cliff”, which sees massive tax increases combined with spending cuts to try to reduce the nation’s budget deficit.

Last month, the IMF gave an 80% probability of a recession in the eurozone over the next 12 months.

Although China recently usurped Europe as the largest importer of South African products, Europe remains an important market for South Africa.

Unfortunately, China itself is showing signs of an economic slowdown and other dominant emerging markets such as India and Brazil have recently been losing their shine.

This is not good news for South African exports. Because of this, South Africa recorded the largest current account deficit in history over the past two months.

We in effect imported R200?billion more of goods than we exported, which means as a nation we are spending more than we earn.

This trend will continue to bring pressure on the rand and there is a good chance the local unit will weaken further – not good news for the petrol price and inflation.

We spend about a quarter of our money on imported goods, including many food products, so the prices on our shelves will rise as the rand falls.

The only silver lining is that our resources shares could start to recover as the rand value of the minerals we export increases.

But this depends on a more stable mining industry than we experienced this year.

One of the main reasons for the excessive current account deficit was the collapse in gold and platinum exports. Our economy could certainly not withstand another Marikana.

These economic forecasts affect people on a basic level. Households already struggling with increased food, petrol and electricity prices will find it even harder to make ends meet.

This is a truth we would rather not hear, preferring instead to hope that the world’s economy will get back online and that the past few years will be just a speed wobble in our new consumerist culture.

But what if we are wrong?

What if Sunter’s prediction comes to pass? How will we manage in a world where no new jobs are created, where investment returns keep falling, where job certainty no longer exists?

Like a doctor telling an obese patient to diet or face serious consequences, households have two choices: either continue to live beyond our means and draw down on whatever credit remains available, or start taking our finances very seriously.

There is only one way to survive and that is to be cash flush, to wake up in the morning knowing we have no debt repayments and we have enough money saved so that if we lose our jobs, we can pay the bills at least for a few months.

We all need to take a long hard look at our lifestyles and focus on what we need rather than what we want.

It is a tough journey, but given the world we face, it is almost a necessity for survival.

The worst thing that can happen is that the futurists are wrong, that we enter a new period of prosperity and that those households which made the hard choices become the most prosperous of all.

Maya Fisher-French explains why 2013 isnot going to be a prosperous new year

Scenario guru and former head of Anglo American’s gold division, Clem Sunter, recently said the current economic conditions were the worst he has ever experienced.

Sunter says there is a 40% chance the world will enter a period of “hard times”, meaning the global economy will show very little growth over the next 10 to 15 years.

The International Monetary Fund (IMF) believes only 60% of the world’s employable population have jobs and 24?million people have lost theirs in the past three years. So, indications are that 2013 is not going to be a prosperous new year.

The US seems to be showing signs of a recovery, with unemployment falling to its lowest level since 2008. But it faces potential political and fiscal fallout over the so-called “fiscal cliff”, which sees massive tax increases combined with spending cuts to try to reduce the nation’s budget deficit.

Last month, the IMF gave an 80% probability of a recession in the eurozone over the next 12 months. Although China recently usurped Europe as the largest importer of South African products, Europe remains an important market for South Africa.

Unfortunately, China itself is showing signs of an economic slowdown and other dominant emerging markets such as India and Brazil have recently been losing their shine.

This is not good news for South African exports. Because of this, South Africa recorded the largest current account deficit in history over the past two months.

We in effect imported R200?billion more of goods than we exported, which means as a nation we are spending more than we earn.

This trend will continue to bring pressure on the rand and there is a good chance the local unit will weaken further – not good news for the petrol price and inflation.

We spend about a quarter of our money on imported goods, including many food products, so the prices on our shelves will rise as the rand falls.

The only silver lining is that our resources shares could start to recover as the rand value of the minerals we export increases.

But this depends on a more stable mining industry than we experienced this year.

One of the main reasons for the excessive current account deficit was the collapse in gold and platinum exports. Our economy could certainly not withstand another Marikana.

These economic forecasts affect people on a basic level. Households already struggling with increased food, petrol and electricity prices will find it even harder to make ends meet.

This is a truth we would rather not hear, preferring instead to hope that the world’s economy will get back online and that the past few years will be just a speed wobble in our new consumerist culture.

But what if we are wrong?

What if Sunter’s prediction comes to pass? How will we manage in a world where no new jobs are created, where investment returns keep falling, where job certainty no longer exists?

Like a doctor telling an obese patient to diet or face serious consequences, households have two choices: either continue to live beyond our means and draw down on whatever credit remains available, or start taking our finances very seriously.

There is only one way to survive and that is to be cash flush, to wake up in the morning knowing we have no debt repayments and we have enough money saved so that if we lose our jobs, we can pay the bills at least for a few months.

We all need to take a long hard look at our lifestyles and focus on what we need rather than what we want.

It is a tough journey, but given the world we face, it is almost a necessity for survival.

The worst thing that can happen is that the futurists are wrong, that we enter a new period of prosperity and that those households which made the hard choices become the most prosperous of all.

Ten ways to survive 2013

» Keep a budget

Although it’s boring, you have to know what you have and what you spend. If you need extra discipline, draw the cash you’ve earmarked for day-to-day expenses and put it in an envelope. When that is finished, there is no more money.

» Say no to credit

Promise yourself that next year will be the year you take on no new credit. If you really need extra cash, find a way to earn it, no matter how menial. Work for yourself, not the bank.

» Change your shopping habits

Check the prices of your usual brands and look for cheaper products. Buy your fruit and veggies separately; prepacked products cost more. Always shop with a list so you won’t spend on unnecessary items.

» Carpool

With petrol prices rising, it makes sense to start lift clubs for work or school.

» Eat before you shop

Research shows that we have less impulse control when we are hungry and we are less likely to have control of our money if we are dieting. Apparently we humans have self-control limits.

» Smallest to biggest

Cut up those store cards; you never need them. Start by paying off the smallest debt to give you a quick sense of accomplishment and the extra cash to start paying off the next smallest debt.

»Think out of the box

Life is about living, so don’t stop having fun. Just be creative. Dreaming of that sports car? Rather hire one for a weekend, which is how long you would enjoy it before the reality of the repayments hits you.

» Change your friends

If you mix with people who measure their value by the “stuff” they own, find new ones. Chances are the “stuff” was bought on credit and they will soon be borrowing from you.

» Startastokvel

Once you have found the right friends, start a savings club. There is nothing like peer pressure to keep you saving for a goal.

» Be grateful

Most importantly, focus on what you have, not on what you can’t afford. Remember that there are at least 2 billion people worse off than you.

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