A cautious optimism prevails

Last week the Department of Economics played proud host to Dr Xolile Guma, the South African Reserve Bank’s Senior Deputy Governor and visiting Professor of Economics at Rhodes. Though Guma concluded in his seminar that economic recovery is well on the way, he did note that it is taking longer than expected.

Dr Guma’s seminar, entitled “The Current Trends and Outlook of the South African Economy”, included an analysis of the current macro-economic profile, starting with a few words on the recent recession. The economic devastation originated in the USA and spread swiftly to encompass the entire globe.

The world’s three largest economies, the USA, Japan and the EU, along with other advanced economies, displayed negative growth rates during the 2008 to 2009 financial year.

Wealthy nations were not alone in this reaction to the crisis. We have now seen an emergence from the sharp decline of 2008 - 2009 but whether this re-emergence will prove to be fragile or robust is open to debate. A universal reduction of interest rates by financial bodies aided this recovery, as did rising export prices.

In South Africa the tertiary sector has displayed the strongest growth in the emergence period. The secondary sector has also demonstrated reasonable stability, but the primary sector in general, and the mining industry in particular, remain worryingly weak.

Expenditure initially made a powerful recovery but has since become somewhat subdued due to consumer pessimism. Debt accumulated during the recession is another factor which continues to inhibit consumer spending.

He added that consumer confidence has recuperated well, but that it is still a far cry from what it was before the recession struck. Fortunately trade seems to have resumed trends in fitting with a growing economy.

The reluctance to lend and borrow during the recession years has been replaced with a cautious return to normality. Dr Guma also notes that South Africa tends to run a current account deficit and presently our debt sits at about R43 billion US Dollars.

South African bonds, however, are hugely attractive to international borrowers because of their high yields. He concluded his talk by reiterating that our economic recovery is well underway but that the strength and stability of this recovery are questionable. Predictions are that our economy will grow by between 3 and 4 % in the next financial year.