‘Prepare for a massive decline in real income growth’

South African trade will not see the vigorous
growth in volume and prices of the past few
years following this year’s global financial
shock, said Standard Bank chief economist
Goolam Ballim.
Speaking at a breakfast hosted by Buffalo
Freight Systems in Sandton last week,
Ballim said South Africans needed to be
realistic about the economic future – and the
next two years would not be rosy.
“The global financial shock will over
the next two years – and maybe even
longer – negatively affect income and
earnings. We will see more job insecurity
and unemployment will rise. In the past
few months the United States has seen a
massive decline in its cumulative savings
and pension funds and this will culminate in
a withdrawal in spending.”
According to Ballim this will affect
markets across the globe negatively. “The
US economy contributes 30% of the world
GDP. They spend ten times more than
the collective of the Chinese economy, a
country which has a billion more people. If
the US market is weak, the world market is
weak. And the leading economic indicators
suggest the US will weaken even more in
the next six months.”
He said as Americans became less
inclined to spend, the effects would ricochet
across the world and lead to a slower global
economy.
“Credit will become more sparse as
banks are more reluctant to give money.
This will mean businesses won’t take as
many risks as they have in the past.”
According to Ballim, with capital
becoming scarce, investment flows will dry
up and remittances will come under siege.
“As commodities continue to weaken, we
will see trade being negatively affected.
South Africa enjoyed healthy growth in
volumes and prices of shipments, but this
will be something of the past in the next two
years. Trade will slow down globally and
we will not see it growing three times faster
than the global GDP as we have in recent
years.”
He warned South African businesses to
plan for the next two years. “Planning and
strategising will be crucial if companies
want to survive as we are going to be seeing
a massive decline in real income growth.”