‘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.”