Sharper-than-expected slowdown in Europe could affect SA exports

SOUTH AFRICAN exports to Europe could be hit by recession in a number of the major markets. The European Commission on Economic and Financial Affairs says in its September report that economic growth is expected to post 1.4% this year in the European Union (1.3% in the euro area) – around half a percentage point less than forecast in April. “The main downside risks identified in the spring forecast have materialised, with financial turmoil deepening and reinforcing the ongoing correction in house prices, commodity prices soaring and fuelling inflation, and the slowdown of global growth spreading more widely,” says the report. Inflation is expected to average 3.8% in the EU and 3.6% in the euro area this year “following the continued strong rise in commodity prices”. "The continuation of the turmoil in the financial markets one year on, the near doubling of energy prices over the same period and the correction in some housing markets have had an impact on the economy, though the recent fall in oil and other commodity prices and the easing up in the euro exchange rate have provided some relief,” says Joaquín Almunia, economic and monetary affairs commissioner. Output has started to fall in several advanced economies in the second quarter of this year. GDP contracted by 0.1% in the EU and by 0.2% in the euro area. For 2008, the Commission’s Economic and Financial Affairs Directorate General now forecasts growth at 1.4% in the EU and 1.3% in the euro area. This is calculated on the basis of updated projections for France, Germany, Italy, the Netherlands, Poland, Spain and the United Kingdom, that together account for about 80% of the EU’s GDP.