Global economic recession is on the cards, especially if the war in Iraq lasts for months rather than weeks.
South African economists were united this week in their prognosis of the effects of the war.
“The International Monetary Fund warned this week that there could be a global recession if the war drags on,” Standard Bank senior economist Dr Pallie Botha told the Mail & Guardian. “The global mood wasn’t good before the war began — and it’s getting worse.”
This is the first time in 25 years that the three major global economies — the United States, Europe and Japan — have simultaneously been struggling to show growth, Botha said.
“The latest data from the US is not good: it’s importing more than it’s exporting. That is sustainable if it receives capital inflows — and these used to run at about $1-billion per day. But when that dries up, there’s trouble. The sentiment of business people is negative — they’re wary of investing.”
Botha says there’s been no attempt to calculate the costs of the war to the local economy, but exports are a major concern.
“Our economy has been increasingly dependent on exports over the past five to 10 years. If there’s no global growth, our exports suffer.
“And figures this week show our first decline in exports since 1992. Real exports of goods and services declined by 1,4% last year. This compares with increases of 2,5% in 2001 and 8,4% in 2000. In other words, our export picture was bad before the war began — and will probably get worse.
“The question is: the US economy is already in trouble, but how deep does that go and what sorts of structural adjustments are necessary? It could be two to three years before it gets back on track — with negative impacts on all other economies, since no economy in the world can take the place of the US economy.”
The two themes of the stock market in these troubled times have been oil and the rand. Emmanuel Lediga, CEO of Legae Securities, notes that on oil, for now at least, “we are safe”.
Last week, the oil price fell by 30% in seven consecutive days as market fears of production disruption receded. The trend was reversed on Tuesday when it emerged that oil fields secured in Southern Iraq were still vulnerable to sabotage, and that production from the fields would not resume in the foreseeable future as initially hoped.
From a high of $34,10 last month, the spot price of Brent crude oil closed at $25,94 on Wednesday.
The rand’s strengthening — R7,94 to the dollar on Thursday — continued to harm mainly resource stock on the Johannesburg Securities Exchange. At the time of going to print the gold index had dropped 2,2%, while the overall resources index shed 0,3%. The bourse was at 7187,93 — a drop of 0,3%.