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Tough times ahead, warns economist

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South Africans are facing tough economic times ahead as the country faces the biggest currency decline in years. The rand hit a new low earlier this week coming in at R14 to the dollar, a result of a stock market crisis that is threatening to cripple the Chinese economy. China’s stocks have dropped by more than 8% in recent days, causing chaos throughout the markets.

Local consumers are likely to feel the pinch of this because of South Africa’s strong trade partnership with the far-eastern state, both countries forming a part of the BRICS collaboration of emerging economies. China is also one of the investors in the African economy, with annual trade amounting to around $160 billion.

According to economist Yumna Ebrahim, China’s status as one of the biggest buyers of local commodities, a decline in demand thereof would be to the detriment of the local economy.

“We are very dependent on export of commodities. That is unfortunate because whenever there is a problem in global markets commodities, prices drop it affects export earnings and everything in South Africa,” she told VOC Breakfast Beat.

There are also talks of SA facing a possible economic recession, the definition of which being two consecutive quarters of negative Gross Domestic Product (GDP). Should the numbers in the next quarter come out negative, the country would technically be in a recession.

Consumers have been urged to be savvier with their finances in coming months, with food prices expected to increase as a result of a drought in the North West which has affected the growth of crops.

“In terms of the petrol price as well, now that the rand has tumbled so much I actually shudder. If we were to get petrol price cut in September which we initially thought could materialise, I think the low rand might wipe that away,” said Ebrahim.

One bit of positivity is that Eskom hasn’t been granted the proposed price increase it was initially hoping for, meaning prices will remain the same until the parastatal reapplies to Nersa for the increase.

With interest rates also facing an increase Ebrahim warned that this could affect debt levels and the ability of people to service their debt. She advised resolving as much debt as possible.

“Don’t take any new unnecessary debt and as a household try and retire as much of your debt as possible,” she urged. VOC (Mubeen Banderker)

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