Interest rates hike dashes hopes of early upturn

LAST WEEK'S interest rate hikes have dashed all hopes of an upturn in the economy by the end of this year or early next year.
That was the message from Dr Azar Jammine, chief economist at Econometrix, in his economic perspective presented at a seminar organised by Status Maritime in Johannesburg last week.
But the message was not all doom and gloom. The economy has been characterised by booms and busts. We are in a bust phase at the moment, which we hoped would be completed at the end of 1998.
Logic suggests that if the economy weakens further, interest rates will fall and 1999/2000 will see an improvement.
South Africa, he said, is experiencing the effects of globalisation. With some 25% of all its economic activity related to foreign trade, it has become integrated in the world economy and is therefore as much a victim of its vagaries as the rest of the world.
In many Asian countries we are seeing full-scale economic recession. Africa has so far has been relatively unscathed by the crisis until last week when interest rates were driven up.
Jammine points out that while the Rand has fallen against the dollar it has in fact risen against the Yen and risen considerably against other Asian currencies.
If you measure the rand against a basket of all trading partners' currencies, it has fallen considerably but not anything like 1996.
Jammine believes that because the US$ and British pound are too strong and are making those countries internationally uncompetitive in the export market, we will see those currencies depreciating later in the year once the emerging markets crisis is over.
The rand's appreciation against Asian currencies has however taken its toll.
In the past decade the SA economy has become increasingly import-intensive.
But there is a limit to the extent to which you can import more if you don't have foreign exchange reserves, and the Asian crisis has aggravated the situation. Growth in exports has been falling while imports have been growing, because Asian products are so cheap.
The result has been a tightening of monetary policy by the Reserve Bank with interest rates so high that growth has been declining and the economy is weak.
This clearly difficult trading market is putting the squeeze on importers and exporters who are in turn squeezing the transporters of their goods.
And Jammine's warning against this was clearly reinforced by Status Maritime m.d. Ian Wicks in his seminar presentation. Because our markets are far away from us, we need competitive transport rates. But you undermine the infrastructure if those rates fall too low.
Wicks pointed out that while 7% of the total cost of any shipment is transport-related, 70% of clients will change lines for the sake of cost.
If we are to safeguard the transport chain, says Wicks, we need to put together logistical solutions in which the transporter is seen as a partner in the logistical process.