The festive season has traditionally seen a dramatic increase in spending and demand compared to other periods in the year, as loved-ones get spoilt, well-deserved holidays are taken and a general attitude towards relaxation and fun is adopted.
However, this festive season could bring about a basket of gifts of a different kind. The run up to “Christmas 2008” is one which is preceded by a number of events which could see this season turn out to be not as jolly as expected.
From an international perspective, the correction in the financial and credit markets in September 2008, which saw a number of global financial institutions declaring bankruptcy or having to be bailed out by national governments has tainted growth forecasts, prompting some analysts to declare that this is the biggest economic downturn since the Great Depression which started 1929 and continued for the better part of the 1930’s.
The United Kingdom, European Union and the United States are on the brink of recession. Also, over the last 12 months, the number of unemployed persons in the US has increased by 2.2 million and the unemployment rate has risen by 1.4 percentage points.
The picture in South Africa is slightly different, with the country being relatively insulated from the turmoil affecting financial markets, However, South African consumers have been under significant pressure. Inflation is expected to remain outside of the 3 - 6% target range for at least another year-and-a-half, with domestic growth prospects (GDP growth) for 2008 and 2009 hovering around 3% compared to 5.1% in 2007.
The strain on the consumer and business has become evident through a range of indicators. Consumer expenditure on all categories of goods (excluding services) has been growing but at a much slower rate than in the past. In addition, consumer expenditure on durable goods especially (vehicles etc.) has declined mainly due to a higher interest rate environment and stricter credit lending standards. Wholesale and retail trade sales also reveal that businesses are under some strain with retail sales experiencing a declining trend since the end of 2007.
However, consumer confidence during the 3rd quarter 2008 revealed that consumers are still upbeat about the prospects for the economy and their finances (although this survey was conducted before the crisis). In addition, slower global demand has seen substantial reductions in the petrol price (further relief for the consumer) and the weaker exchange rate means that exporters are now more competitive.
To summarise consumption is expected to slowdown slightly this festive season; however, South Africa is in a much more favourable position than many countries and despite the slowdown should consider themselves lucky…
For more information about investment opportunities in the Western Cape, contact Judith Coetzee at Wesgro on +27 21 487 8600 or email judith@wesgro.co.za
