Friday, February 13, 2009

Manuel says don't worry about 'Recession' - I say 'get ready for it'

A few things happened in 2008 that caught almost everyone unawares. Many say that no one predicted the housing bubble and credit crisis. Some people did. They were dismissed as being 'negative'. This blog is one of those.

Once again, while we all may wish that the economy recovers quickly from the current malaise, this is dependent on exigenous factors (external) becoming benign. This is too much to hope for. World economic growth is prjected to be a paltry 0.5% in 2009. That means little or no positive flows are likely to prop up either South Africa's economy or any other.

Another important factor to remember is current energy prices are an illusion. >$50 oil does not reflect true extraction costs, and this cannot continue for much longer. This is an artifical and temporary reprieve thanks to corrupt dealings in those markets. We are wrong to be grateful for these, because higher energy prices stimulated investment in alternatives, and also in further production capacity. Both of these are now no longer possible. The result? An energy supply crunch in 2009, possibly in mid-2009. As demand tries to turn, energy prices will spike, only worse than in 2008.

The result: unemployment and inflation - cycles of both. Very nasty.
CAPE TOWN — Treasury officials conceded yesterday that if the global economic downturn proved to be deeper and more prolonged than expected it would pose a significant risk to the economic growth forecast they used to underpin the 2009-10 budget announced by Finance Minister Trevor Manuel this week.

“However, if the world economy only starts to recover in 2011 and commodity prices fall further it will have negative implications for us.

“We do have the space to cushion the economy against even a long-term downturn,” Naidoo said.

“It is not a scenario that we wish to contemplate, but it is certainly one that we have thought about and have had at the back of our minds.

They believe the severe global recession will drag down domestic growth much further than the government expects.
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