South African recession unlikely as inflation, rates outlook turns

South Africa, while experiencing higher inflation than in recent years coupled with slowing growth, was unlikely to dip into recession according to a market analyst.

Investec director Jeremy Gardiner said that although a world trend of slowing GDP is evident in South Africa too, the markets in the first half of 2008 had been quite resilient to bad news, while the outlook for 2009 was more positive.

He said that inflation was expected to ease significantly over the next year, which, with a more positive outlook on interest rates, was expected to bring consumers added relief.

The August Merrill Lynch fund managers’ survey for South Africa forecast that 80 percent of managers believe the next interest rate move would be down after the reserve bank kept rates unchanged at 12 percent last week.

Gardiner added that although “anything that requires a loan to buy is vulnerable” he believed we were already 60 percent of the way through the subprime crisis, which had seen liquidity dry up as banks became reluctant to lend leading to falling asset prices.

He believes that although it may take time for banks to regain the confidence required to lend more freely, this should slowly start improving, which was good news for falling asset prices.

Further reasons to be positive for Gardiner was that food prices had stabilised, and in cases already sharply corrected after retailers failed to cash in on inflation fears by pushing up prices absurdly. Commodities have also experienced a necessary pullback, like oil, which could help free up liquidity as the price of fuel dips.