South Africa

Details

  • Service: Advisory, Performance & Technology
  • Type: Press release, Survey report
  • Date: 2010/08/26

Double-dip recovery still on the radar 

The risks of a double-dip recovery following the global economic recession remain high despite optimism surrounding the strength and swiftness of the global economic return. These risks are compounded by the unevenness of the global recovery, structural inconsistencies in industrialised economies and a loss of momentum in key markets such as the US, the UK and Europe.

This was the view articulated by keynote speaker Nicky Weimar, a Nedbank senior economist, at the local launch of its most recent survey by KPMG. Improving financial performance in 2010 and beyond, elicited responses from over 157 South African entities and surveyed the strategies put in place by local businesses to pull themselves out of recessionary conditions.

 

“The risk of a global economic relapse sits at 20% to 40% over the next three to five years,” maintains Weimar. “Although relapses are rare and our GDP figures point to a recovery, the recovery hasn’t been as strong as we’d like to see yet. South Africa’s dependence on exports still places the country at risk given the roles played by the US, UK and Europe in that sector. The risk is there in the global economy.”

 

Although consumer demand has picked up because of stimulus packages in those developed markets, when the packages are stripped out of the equation, there remain questions about private sector momentum and real growth in the global economy, particularly with stagflation playing a significant role in the Japanese economy, with a very real likelihood the US might head in the same direction. The emergence of China as an emerging consumer market has also played a significant role in bringing stability to the global economy by picking up demand for commodities through the introduction of a US$600 billion infrastructure-heavy stimulus package.

 

“This has had the twin effect of stimulating our mining and manufacturing sectors and enhancing business confidence to restock. This helped pull companies out of the retrenchment and cost-cutting phase. This in turn restored consumer confidence, which contributes 60% to the local economy.”

 

Also speaking at the launch of the survey, Therese Cilliers, Partner in Finance Transformation at KPMG, urged businesses to move away from solely focusing on managing costs to also consider investing in business growth. In addition, while businesses identified managing costs as a priority, only a small percentage of the sample were achieving set targets. “The survey found that while businesses had set themselves challenging targets for cost reduction, 83% of respondents achieve less than a quarter of their set targets, with 9% reporting that they have no idea what they have actually achieved. This is cause for concern as international businesses reported achieving nearly 60% of their set targets in a global survey conducted by KPMG International,” said Cilliers.

 

While most of the risk of the recovery lies in the industrialised world, a slow, carefully-managed recovery is most likely to pull the globe out of recessionary conditions, said Weimar. The biggest risk faced is deflation, where consumers are reluctant to spend a country into economic growth and will hold onto savings before injecting liquidity into the national economy, as is currently being experienced in Japan.

 

In addition, Weimar believes the South African government should focus more on creating the stable environment required to create employment, as opposed to pursuing the task of creating jobs itself. “Uncertainty around land reform, for example, is inhibiting farmers from making large capital investments. The private sector needs more certainty in the environment to create work.


“It’s going to be a subdued, slug-it-out period that we are likely to enter before we see a stable recovery,” said Weimar. “The risk of a double-dip recovery is, very simply, there.”

 

Access the full survey.