‘Brace yourself’ for 2009 - Bruggemans

While Lower oil prices, a weaker rand, bigger budget deficits and lower interest rates will prove important counters to the global industrial “cascading weakness,” it won’t be able to prevent all of it. “Brace yourself,” is the advice from FNB chief economist Cees Bruggemans. “Global industrial production is currently plunging at a double-digit pace, deepening the recession taking hold in the US, Europe and Japan, elevating it to the status of “most severe since WW2,” he says. This is the “fifth big shock coming ashore for us”, after the four shocks so far marking 2006-2008. These shocks were the domestic overheating and interest rate tightening of 2006- 2007, the Eskom electricity outage of 1Q2008, the great commodity price inflation of 2Q2008, and the great commodity price implosion and accompanying risk aversion of 3Q2008 and 4Q2008 driven by the global financial crisis. The fifth shock could see declining export volumes as deepening global recessionary conditions bite. In South Africa, “besides seeing household consumption dwindling to a halt, and seeing parts of private fixed investment falling away or under pressure, there is likely to be still more adjustment ahead,” he says. “We may see two or three quarters of substantial destocking taking hold, even as export volumes are also under pressure from shrinking global industrial and consumer demand. “Through mid-2009, and possibly through year-end 2009, our growth condition will likely be under siege from all these many sources, as much the shocks that were absorbed during 2006-2008 as the fallout from the global recession that may now increasingly show its evidence here as well,” says Bruggemans.