The South African economy is already in a consumer-led downturn that is yet to bottom, and economic growth may have declined to below two percent in the third quarter compared with 4.9 percent in the second quarter of 2008, says chief economist from Sanlam, Jac Laubscher.

Laubscher also feels the global financial crisis has "opened up various channels" through which the downturn could be aggravated.

"Export volumes and values could be further suppressed, with a negative impact on the current account. South Africa's terms of trade could decline – the price of platinum has, in fact, fallen much more than that of oil – and capital inflows could come under more pressure," he notes.

Laubscher says net foreign sales of SA equities and bonds have amounted to more than R20-billion since September 2007.

"South Africa is nevertheless fortunate to have such a low level of foreign debt at this point in time. A weaker rand could keep inflation elevated for longer in spite of lower oil prices, delaying the expected decline in interest rates," he says.

Force households to rein in spending

Declining asset prices, together with high debt levels, could force households to rein in spending even more.

"Weaker demand will cause businesses to delay capacity expansion, suppressing capital spending. However, continued infrastructure spend will help to underpin the economy even though it cannot compensate for all the other negative influences, and the disciplined fiscal policy of recent years puts South Africa in a position to act contra-cyclically now by announcing a expansionary budget on 21 October," says Laubscher.

Like their global counterparts, South African companies will also face pressure on their earnings.

"In spite of reasonable to even cheap valuations, local equities will struggle to perform in a global bear market. Bond yields are being held up by still high inflation, although they are discounting the probability that monetary policy tightening has reached its end," he explains.

In addition to the global financial turmoil, South African investors are faced with political uncertainty.

"Regardless of the machinations taking place around individual members of government, the crucial question is policy continuity. The final word on this question will unfortunately not be spoken until the new administration that is to take over in 2009 is well entrenched so that it can be judged on its actions rather than on its words.

"It is therefore best to assume that an uncertain and volatile period still lies ahead. Caution remains the watchword," concludes Laubscher.

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