SA set to avoid global recession

2008-11-05 00:00

South Africa’s economy will almost certainly avoid a recession that has already gripped many parts of the world, thanks almost solely to the government’s massive infrastructure spending spree.

That is the view of Dynamic Wealth senior economist Johan van Tonder, who told The Witness that “investment is the glue that holds our economy together”, particularly in times of uncertainty.

“When companies see any chance of making a profit, they will start investing in order to meet the extra demand. This raises the income of that company and that economy — [that is] gross domestic product. When that increased demand leads to spending, that spending becomes an income for somebody else and that person then spends, and that becomes income for somebody else and so on. It’s much more powerful than household spending,” he said at a recent presentation in Durban.

Van Tonder expects that an investment growth level of 10% will lead to a 25% increase in the GDP growth rate. “If the economy grew at four percent, 25% of four percent is one percent, so it will lift economic growth by one full percentage point, and that’s huge,” he said.

SA’s investment growth level was 13% during the first half of 2008.

Finance Minister Trevor Manuel confirmed that about R600 billion of investment in infrastructure remains on track for the next three years.

Another analyst, Professor Dilip Garach, agrees that the country will avoid a recession, but remains concerned about other domestic issues, including crime and corruption, political uncertainty, skills shortages and a leadership void.

He believes that the global slowdown is also a threat to the economy.

Speaking at a recent presentation in Pietermaritzburg, he said that not enough employment was created during SA’s high-growth phase.

Garach said the hiking of interest rates to fight consumer inflation may need to be reviewed because it impacts on busines people and others who borrow money, which in turn hikes the cost of production and becomes inflationary.

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