Durban - Economists in the country have urged consumers to be vigilant about their savings and spending as more developed economies in Europe, and the US, have slipped into recession, while China has recorded an economic slowdown.
Last week, the US Federal Reserve announced that interest rates would be hiked by 75 basis points for the second consecutive time. The announcement follows the US recording two consecutive quarters of negative growth, pointing to signs of a technical recession.
Professor Irrshad Kaseeram, of the University of Zululand’s economics department, said inflation in the US was at an all-time high which had led to the interest rate hike.
“Unfortunately when interest rates rise, although it helps with inflation, it is not good for business, hence we see America recording two quarters of negative growth.
“We also saw some European economies slip into a recession, while China has also shown signs of slow economic growth. We as South African consumers should be concerned when leading economies are struggling as this will slow our own economic growth. It will cause a decline in exports from South Africa which will be bad news. Any decline in exports will cause a drop in the economy and affect South Africa’s already high unemployment rate.”
Kaseeram cautioned that the tough economic times could last for the foreseeable future.
“With global economies falling into recession, South Africa could see yet another interest rate hike to deal with rising inflation. This will cause the cost of prices to rise for goods, putting more pressure on the economy.”
There will be a slight respite for consumers as the fuel price is expected to decrease this week.
“The expected fuel price decrease will provide some respite to consumers. But with the number of increases we have seen in the fuel price this year, the current decrease won’t be enough to have a major impact.
“We are hopeful that with economies struggling globally, it would lead to less demand for Brent crude oil, leading to a lower price and hopefully more decreases in the fuel price. However, the Russian and Ukraine conflict also has an impact on the price of oil which we hope will be resolved in the near future,” Kaseeram said.
Professor Bonke Dumisa, an independent economic analyst, described the situation in the US as concerning.
“There has been talk that America is slipping into a recession; however, when we look at the numbers, two consecutive quarters of negative growth mean the country has already entered a technical recession.
“We have to admit that America is one of the leading economies in the world and the US dollar is one of the most used currencies in the world. When it is under pressure, it does have an impact on the world’s economies.”
Dumisa said South Africa was experiencing tough economic times, but shutting down the economy because of rising costs should not be encouraged.
“We can’t allow people to call strikes and protest action because of rising costs; this will not help the economy in any way. It will just put us under more economic pressure.”
Dr Ntokozo Nzimande, a senior lecturer in the department of economics at the University of Cape Town, said if the US slipped into a recession, the whole world would be impacted.
Nzimande said the expected fuel price decrease was not enough to make a significant positive impact.
“Obviously, it will provide some relief to consumers, but it won’t be enough. It won’t make any significant difference to the pockets of consumers.”