SA economy weighs down on business

Reports released by the South African Chamber of Business (Sacob) in conjunction with Absa Bank, as well as the Bureau of Economic Growth (BEG) recently pointed to a decline in fortunes for local companies.

The researchers said a slower rate of economic growth, inspired by rising interest rates, higher inflation and rapidly rising fuel prices was bogging down businesses, which were gradually finding it harder to stay viable.

Sacob economist Richard Downing said the likely implications were worsening fortunes for consumers, who would be forced to take on some of the strain.

“One of the strongest points that emerged in the survey was that all businesses are feeling pressure on prices on the input side. This will affect the prices consumers pay,” Downing said.

Local consumers have had to contend with constantly rising fuel prices, which have risen by almost 50 percent this year, and persistent increases in interest rates that have sent the costs of borrowing and production on an upward spiral.

The worst of the news has been that the trend is likely to continue well into next year.

“The fuel prices that businesses have to deal with now will have to be passed on to retailers and then consumers. This price effect will filter through at least until the middle of next year,” Downing said.

A recent Fund Managers survey by investment and financial advisory firm Merril Lynch highlighted dampening optimism by fund managers and investment analysts.

The survey showed that business optimism was at the lowest it has been in 38 months and at least 44 percent of the fund managers that had been surveyed believed the economy would weaken in the 12 months from June 2006.

In a report released two weeks ago, the BER said it expected the economy to grow much slower than originally anticipated over the next two years, even though it would overcome concerns over a weaker Rand, high interest rates and emerging markets.

The BER said it had lowered its quarterly growth forecast to 4.3 percent and 4.1 percent for this year and next year respectively.

This was lower than last year’s record 4.9 percent economic growth, which was driven by high consumer spending and domestic demand.

Last year’s numbers chronicled the South African economy’s fastest growth in over 20 years, making the country’s one of the fastest growing economies in Africa.

With businesses already feeling the pinch of the new economic regime, analysts believe consumers should brace for a rough ride.

Reserve Bank governor Tito Mboweni has also warned consumers to tighten their belts, as prevailing economic conditions could continue into next year. Economists said consumers with debt would be the hardest hit by prevailing conditions, and were likely to feel the pinch when their next set of mortgage payments and vehicle finance repayments were due.

However the rate hike would benefit those consumers who had savings, as the increase would filter through to cash deposits.

August 2006
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