ANC’S solutions for global slowdown shortsighted

OUR exports to Europe, still our biggest trading partner, are falling. The latest data showed a 7.3% decline in June, primarily as a result of the common monetary union’s sovereign debt crisis.

And those exports haven’t been simply redirected to China or any other emerging market nation that the South African president has recently visited in his attempts to boost trade links — they are all experiencing a slowdown.

For the year, South African exports are up only 6.7%, while imports are 21.4% higher.

These numbers send a cold shiver up my spine. In such an environment, where is SA going to find growth to really pierce unemployment levels, especially those of the youth? We can’t applaud the official unemployment figures yesterday that showed only a marginal decline to 24.9% from 25.2%.

Jacob Zuma’s African National Congress suggests a job seeker’s grant to help jobless youth levels at 50% or more. It doesn’t exactly create jobs for the 5-million-odd who may benefit; instead, it adds to the welfare bill, which with public sector wages now takes up more than half the national budget.

The ruling party’s solutions seem shortsighted for a global economic slowdown that looks set to last much longer than we were all hoping when SA emerged from the past recession. Growth levels seen before the 2008 crash are still a number of years away.

What are being presented as solutions do not inspire much confidence that the ruling party will reach its goal of halving unemployment by 2020.

THE central banks of the US, eurozone and China, and to a lesser extent the UK, now shape sentiment on the markets on any given day. Statements on monetary policy are much more closely followed than those of the world’s most powerful people, US President Barack Obama and German Chancellor Angela Merkel. They bear significant weight on bond, equity and commodity markets.

Before the US’s subprime mortgage crisis that helped unmask the sovereign debt crisis unfolding in Europe, probably the most famous central banker was Alan Greenspan, who at that stage was credited with having overseen one of the greatest periods of wealth accumulation the world had seen.

Today, markets hang on to every word of US Federal Reserve governor Ben Bernanke, Mario Draghi of the European Central Bank, and Mervyn King of the Bank of England. The slowdown of the Chinese economy has also pushed that country’s central bank into prominence as investors await new stimulus measures to boost the world’s second-biggest economy.

This week’s focus is firmly on the stimulus doctors. Exactly what dose will the global economy get?

First up is the US Fed this evening. Mr Bernanke has to find a way to reduce unemployment in the US that is still above 8% and in the process secure a second term for Mr Obama, and his own job.

The US Fed is expected to consider a few possibilities, top of the list being a third round of quantitative easing. It’s unlikely it will embark on this route until at least next month, depending on the US economy’s continued slowdown.

Older Wall Street is known to be particularly anti-Democrat and that means pro-Mitt Romney, so a shot of stimulus right before the presidential polls may yield dividends.

The other option, which Mr Bernanke hinted at last month, is a potential cut in the interest on excess reserves, from 0.25% to 0%. By reducing this rate, the Fed gives financial institutions the push to shift their money into lending that yields a higher return. The aim is to expand the supply of credit and speed up economic growth.

The second option seems the more likely scenario, but markets may be disappointed with what I think they will rather get: a promise to keep rates at record lows beyond the middle of 2014.

If I am right, markets will most certainly be disappointed. The rally in stock markets over the past couple of weeks could quickly be unwound, and fingers get burnt in the process.

The disappointment will place even more pressure on the European Central Bank to act when its takes centre stage tomorrow. It hasn’t done as much as the Fed or the Bank of England to address growth concerns.

Mr Draghi raised hopes for decisive action with his pledges last week. If he doesn’t deliver, markets are going to take even less kindly to that inaction.

So while Mr Bernanke may be allowed to disappoint this evening, I feel there isn’t room for Mr Draghi to do the same. I can just see those financing costs for Spain and Italy surging already.

E-mail: derbyr@bdfm.co.za Twitter: @ronderby