There is a worldwide global economic meltdown and South Africa will not be able to escape its impact. Nor the obligation on policy-makers to fashion measures to mitigate it. Remember the celebrated sixteenth century poet John Donne? "No man is an island, entire of itself". Nor has South Africa an economy entire of itself.
Last October just as Wall Street began another nerve-wracking slide to a record low, senior Old Mutual economist Johann Els was reassuring policy holders and investors: ".... The South African economy has probably weathered the worst of the storm and conditions are likely to improve from here into 2009". He also pointed to "some positive factors that make the South African economy relatively less vulnerable than many", among them a weaker rand that "will help boost exports in the medium term".
True enough the steep fall in oil prices and moderating inflation allowed the South African Reserve bank to cut its key lending rate in December 0.5% to 11.5%, down from a peak of 15.5%. That will enable, Els predicted, the CPIX (consumer price inflation less mortgage costs) to decline from 10% in December, 7% in January and on down to 3%-6% in the second quarter in 2009.
Other economic advisers were likewise optimistic pointing to the fact that South African banks had avoided (good judgment or exchange control?) the trap of mouth-watering returns offered by toxic US mortgage-related sub-prime securities. Bottom line, Els expected GDP growth in 2009 to hold steady at "just below 2%".
Around the world countries would be overjoyed to exchange 2% growth for the bleak prospects facing their citizens this year. But first let's do the numbers for end-2008:
In the US two words describe equity markets last year: annus horribilis. When the year began the market cap of shares in the S&P 500 index was $12.86 trillion. By years- end it had slumped to $7.85 trillion resulting in the biggest destruction of wealth investors have ever suffered. You could buy General Motors stock for a mere $3.20 a share!