Provided one can see through all the financial markets’ doom and gloom, the first point is that the chances of a global double-dip recession seem remote, if for no other reason than that the Asian economies of China, India and a variety of others are all growing rapidly. Additionally, other large emerging economies such as Russia’s and Brazil’s are also growing strongly with no signs of falling back into recession. The world’s largest economy, the US, is growing in a very patchy fashion, but it looks like it will stay on a recovery path.
What seems to be concerning many observers is that unemployment in the US remains stubbornly high leading them to the view that this will be a jobless recovery. They would do well to look at the time lapses between recoveries beginning in the US and employment growth really taking off. Since the mid-1940s, these have become increasingly longer. The US recovery only officially began last year, so it seems premature to suggest that its recovery is genuinely a jobless one. Provided the economy keeps growing, firms will have to hire more people, as there is a limit to how productive any firm can become.
So this effectively leaves Europe – and there genuine concerns about a double-dip recession do appear to be materialising.
The current concerns about Europe are two-fold; economic and financial. The economic concerns revolve around the ability of certain countries – notably the so-called “PIGIS” (Portugal, Ireland, Greece, Italy and Spain) to reduce both their budget deficits and debt-to-GDP ratios. The main financial concern is that European banks may be over-exposed to one or more of these countries and could conceivably lose massive amounts of money if any of these countries were to either default or alternatively only pay back a portion of the loans owing to the banks. This latter action is known colloquially as taking a “haircut”.
But there are nascent signs that Greece may, slowly but surely, be getting on top of its horrendous budget deficit. This may appear incongruous amid the near-anarchic scenes of protestors in Athens, but the EU and IMF have recently issued statements that suggest the deficit may indeed be reducing.
One should also not forget that the Greek economy is relatively small, at about $300 billion. The really large European economies, such as France and Germany, are doing comparatively well. Germany is enjoying something of an export boom, ironically aided by the weak euro, which in turn was caused by the unfolding Greek tragedy.
Across the English Channel, UK chancellor George Osborne’s recent emergency budget has been well received by markets as evidence that the Brits, too, have the will and the ability to tackle their budget deficit.
Most economists agree that global GDP growth will bounce back significantly in 2010 from last year’s recession and that 2011 will also show growth, with both years above 4%. Even developed economies should show steady, if somewhat anaemic, growth, but at least it should be positive and not representative of a double-dip recession.
Marcus’ concerns may revolve around the fact that Europe is still our largest single trading bloc partner and, if growth there is slacking off, it may well have a ripple effect into South Africa. And while this is undoubtedly a genuine concern, it neglects the impact of internally generated growth here.
Most high-frequency economic indicators in South Africa point to a sustained economic recovery, and growth this year should probably come in around 3.3%. There are a couple of possible hiccups, notably in the form of the weaker-than-expected Purchasing Managers Index figure which went back into a contractionary phase in June. But retail sales growth is picking up momentum, augmenting the recovery seen in manufacturing, for example.
It is reassuring that Marcus is concerned about the possibility of a global double-dip recession impacting negatively on South Africa. Hopefully her concerns will prove to be unfounded and a close examination of global economic fundamentals suggests this may be the case. Even arch-bear Nouriel Roubini reckons Europe won’t suffer a double-dip recession and that a more likely outcome is barely positive growth.
The governor’s job is especially difficult at this time. She has to balance all the various forces clamouring for a cut in interest rates with the fundamental economic statistics that suggest our economy is recovering well. But she is highly visible, presenting in a clear and rational fashion the elements with which she has to contend. We all wait with baited breath to see what she and her monetary policy committee do about interest rates on 22 July.
(Gilmour is an analyst with Absa Asset Management Private Clients)
Want to watch Richard Poplak’s audition for SA’s Got Talent?
Who doesn’t? Alas, it was removed by the host site for prolific swearing*... Now that we’ve got your attention, we thought we’d take the opportunity to talk to you about the small matter of book burning and freedom of speech.
Since its release, Pieter-Louis Myburgh’s book Gangster State, has sparked numerous fascist-like behavior from certain members of the public (and the State). There have been planned book burnings, disrupted launches and Ace Magashule has openly called him a liar. And just to say thanks, a R10m defamation suit has been lodged against the author.
Pieter-Louis Myburgh is our latest Scorpio Investigative journalist recruit and we’re not going to let him and his crucial book be silenced. When the Cape Town launch was postponed, Maverick Insider stepped in and relocated it to a secure location so that Pieter-Louis’ revelations could be heard by the public. If we’ve learnt one thing over the past ten years it is this: when anyone tries to infringe on our constitutional rights, we have to fight back. Every day, our journalists are uncovering more details and evidence of State Capture and its various reincarnations. The rot is deep and the threats, like this recent one to freedom of speech, are real. You can support the cause by becoming an Insider and help free the speech that can make a difference.
*No video of Richard Poplak auditioning for SA’s Got Talent actually exists. Unless it does and we don’t know about it please send it through.
Sushi is traditionally eaten by hand and not with chopsticks.