Economic recession

2009-02-26 00:00

When the sub-prime housing calamity hit the United States last year, the benefits of credit control regulations in this country became evident, providing a safety net from the perils of major economic recession. Finance Minister Trevor Manuel was at pains to say that technically there is no recession in South Africa because this is defined by two consecutive quarters of negative growth.

It is now clear that the tentacles of the calamity overseas have, without question, reached these shores. Figures have been released which show that the last quarter of 2008 signifies a negative growth rate for the first time in the past 15 years. It seems highly likely that the first quarter of 2009 will reveal a similar trend. By April this country will be in economic recession both technically and in stark reality. A positive feature for holders of bank loans is that the South African Reserve Bank is bound to bring interest rates down significantly in the coming months. In addition, inflation will continue to drop and may reach the treasury’s long-standing ambitious target of between three and six percent.

Both government and the private sector, meanwhile, will need to exercise smart fiscal discipline in their attempt to avoid debt on the one hand and, on the other, not to treat people as mere commodities to be jettisoned. Consultations are already taking place between the government and hard-hit industries such as mining and the motor industry. Those dependent on the export trade are also feeling the pinch as their markets dry up. Financial bail-outs like those resorted to in the U.S. and Europe should, if possible, be avoided. While they can have the effect of buoying up a crisis and releasing new economic energy, they also create a legacy of debt which will have to be serviced and ultimately repaid by hard-pressed taxpayers.

Perhaps the Soccer World Cup, scheduled for this country in 2010, will help to facilitate a rise out of the recessionary trough. If that is to be the case, a great deal of wisdom and restraint will be required between now and then.

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