Jorge Maia

Key Economic highlights

Jorge Maia, head of the IDC's Research and Information Strategic Business Unit (SBU) gives an overview of the key economic highlights and the implications for business.

Highlights of recent economic developments

• Signs of economic stabilisation are becoming increasingly evident in various regions of the world.Several economies previously in recession recorded positive growth in the second quarter of 2009 (e.g. Japan, Germany, France, Greece, Portugal and the Czech Republic), while the growth momentum is accelerating in certain emerging economies such as China.
  
  
• A growing concern relates to the series of steps that will have to be taken to sustain the recovery, but without further compromising the stability of the global financial system, particularly through an excessive accumulation of public debt and a possible build-up of inflationary pressures.
  
  
• The sustainability and potential domestic imbalances spurred by China’s investment-led growth are also of concern. An extremely narrow support base and an excessive reliance on fiscal support are underpinning the Chinese growth momentum. The resurgence of Chinese household consumption and export demand are essential, since the continued provision of investment stimuli on a massive scale is not sustainable over the longer-term.
   
• In South Africa, further clarity on the direction of key elements of national economic policy was provided by the responsible Ministers in their recent parliamentary addresses. Government’s focus will lie on reducing inequalities and stimulating employment creation.  Improved coordination is expected to translate into enhanced effectiveness of governmental initiatives.
  
  
• The inflation targeting debate will most likely continue, but this monetary policy approach is expected to remain in place.  Considering the harsh economic realities and encouraged by moderating price pressures at the consumer level, as well as by deflationary forces at the factory gate, the Monetary Policy Committee of the South African Reserve Bank (SARB) reduced the repo rate by a further 50 basis points at its August 2009 meeting.
  
  
• The adverse economic environment continues being manifested through severe job shedding (the economy shed 475 000 jobs in the first half of 2009), through reduced import demand despite a stronger currency, and by a contraction in credit extended to the private sector when measured in real terms.
  
  
• A handful of indicators are, however, providing early signals of economic recovery in South Africa, including the SARB’s leading indicator and the improved Purchasing Managers Index. 

• Expectations are that economic conditions should improve towards the end of the year, although the consensus is that the recovery will not be a swift one.The lagged impact of the 500 basis points cumulative drop in interest rates will continue to alleviate the household debt burden and gradually lead to a revival in consumer spending. However, employment losses to date and the possibility of further retrenchments ahead may counter this momentum to a significant extent.
   
• The domestic economy will continue being supported by the massive public sector capital expenditure programme underway, especially if a focus on local procurement to revive production activity and induce investment in additional industrial capacity is firmly entrenched and starts bearing results. The FIFA World Cup in 2010 will energise economic activity and certainly enhance tourism earnings.

  
  

Implications for businesses

• The advanced economies are likely to take longer to recover than the emerging world, thus warranting targeted export marketing strategies by businessesso as to benefit from such short- to medium-term trends in global investment and trading activity.
   
• Greater governmental emphasis on maximising the local benefits of public sector procurement, as well as efforts towards improved policy coordination and implementation should translate into substantial opportunities for the business sector.
   
• The recent cut in interest rates may be the last for the time being, implying that businesses should continue implementing prudent cost-cutting measures and effective productivity improvements to ensure their sustainability through the crisis.
   
• The economic recovery could start as early as the last quarter of 2009, but will not be economy-wide.Businesses should understand their customers’ realities and adjust accordingly to changes in demand. Certain sectors/industries and firms are likely to experience the benefits of a gradual upturn later than others, thus requiring continued close monitoring of cash-flow constraints and timely preventative action over a more prolonged period.