One foot on the Pedal, the other on the Brake
Speaking at the Annual General Meeting of the Hermanus Business Chamber on Thursday 17 May, Dr Bruggemans said: “There is a long list of things where you discover that one foot is on the pedal and the other foot on the brake, and we’re even putting the handbrake on while trying to accelerate – not really a combination where you’ll get much speed.“
He said the current economic climate is a complex issue. So many things are happening, and we have no idea as to the kind of surprises which still lie ahead of us. “The question is: do we have reason to be comfortable, or should we be asking serious questions as to how careful we should be in the times ahead of us?“
He explained that we were also drawn into the aftereffects of the massive Anglo-Saxon banking crisis three years ago, combined simultaneously with huge problems in Europe. These factors affected us even though they are some distance away, and the economic problems which are playing out internationally will take many years to be addressed .
“We ended up in a serious recession as other countries were, which affected us similarly. We have begun to recover, but we are still in cruising mode, essentially still underperforming, but doing so quite steadily, showing some improvements, some growth and some gains.“
The growth factor of the economy is somewhere in the region of 3%. There seems to be consistency in that. What we are experiencing should continue, but we do not have reason to expect that this will accelerate.
“Domestically we tend to do things which make it difficult for ourselves, especially politically, but also in the way that the Government and Public Sector plan or at times, don’t plan. We’ve discovered some headwinds in the system: we have run out of electricity, we’ve run out of rail capacity for exports, the government has become a lot more intense, making it increasingly difficult for businesses. The banking system has reinvented the rules and criteria for credit, which is negatively affecting key sectors of the economy such as the building industry.
In forecasting a 4 or 5-year review, Dr Bruggemans said: “The best you can get is that which you have. Things could go wrong and the world could go into spasm again, sideswiping us as in 2008 by international events.”
“It seems as if the problems in the United States and Europe may take up to 10 years to recover. China is also going into a slowing phase, adjusting to the prevailing economic climate. The commodity super-cycle is slowing down after 10 years of accelerated growth. The demand worldwide is slowing down and prices are falling.
But the USA, Europe, China and the Middle East can bring surprises. Things can also turn out differently to that which we expected. The demand for oil has dropped with a commensurate drop in price - and this against expectations.
All these factors can make a difference to the Rand’s value, our stock market as well as inflation and interest rates. It is difficult to forecast. You are literally dancing through a mine field without any idea of where the mines are.
“I have a very stable forecast which rests on very unstable foundations,” said Dr Bruggemans. “If I forecast 3% growth for the next few years, it is based on the current trends, but surprises may happen. We should be doing better, but we have these headwinds, and it will be a real surprise if we start to outperform. For the next 4 or 5 years things should basically continue the way they are currently. I also do not expect the Reserve Bank to lower interest rates for the next 12 -18 months. The Rand is fairly stable and should remain within reasonable ranges, say between 7-8 to the dollar – unless surprises come our way which could weaken the rand.”
The Reserve Bank is in neutral. It has lowered interest rates, maybe too much given the level of the inflation rate. The Economy is underperforming, and we should have a prime rate of 11%, not 9%. We can expect the Interest rates to remain unchanged this year and next year, provided the system continues to do what it is currently doing.
In the USA the 0% interest rate is expected to remain unchanged until at least 2014. In Europe the interest rates are currently 1%, and will probably fall even lower. If the big players worldwide are sitting at a static interest rate of 0%, then the little guys will also not rise.
“The world is so unstable and full of surprises, you can’t be too fixed about the level you are forecasting. We live in a very complex world - by far the most complex in 100 years. The good news is that our forecast is fairly stable, but be aware and cautious of risks, because things can change fast.”
The Hermanus Business Chamber is implementing a new strategy to try and improve the local economy, under the leadership of the new Committee appointed at the AGM, which was attended by more than 80 business managers.
From L to R: Hugh Jones, Gcobani Ndzongana, Joan-Anne Harris, Clinton Lerm, Thys Bester, Johan van Zyl, Mervin Milner, Jeanette du Toit, Archie Klaas
By Alta Pretorius