If the present economic climate deteriorates further, South African exports will be constrained in both value and volume terms and financial markets will remain volatile, warns Nedcor chief economist Dennis Dykes.
Writing in Nedcor’s annual report, Dykes says there are hopes that the economic upswing will gain momentum in 2003, with both inflation and interest rates expected to fall significantly during the year as the firmer rand and last year’s monetary tightening start to take effect.
However, the key danger to this improved outlook, he says, remains the global economic and financial climate.
“Although most anticipate that the worst of the weakness is now over, it remains unclear how significant structural problems in each of the major developed economies will impact on any cyclical recovery.”
In the US massive individual and corporate debt and a growing current account deficit threaten to drive the dollar lower and keep growth modest at best. Also, Japan still needs to carry out financial sector reforms and Europe is struggling to keep government finances under control.
Adding to this complicated mix, asset prices remain high despite declines in equity markets over the past three years.
“If this environment deteriorates further, SA exports will be constrained in both value and volume terms and financial markets will remain volatile,” Dykes adds. – I-Net Bridge