The latter, plagued by the pervasive effects of the US sub prime debacle, have become the main source of financial instability, global systemic risk, and a considerable loss to the poor worldwide. While the US economy, the primary engine of global growth, is on the brink of a possible recession, the combined economies of Brazil, Russia, India and China provide a parachute for the global economy.
Fault lines in the global financial system of the developed economies are evident. Most importantly, the oversight mechanisms in the financial system of the developed world are defective and policy-makers are not as informed as they pretend.
The global economy, and many of its constituent members, is characterised by rising economic prosperity in the midst of growing political uncertainty. The unsustainable coexistence of sociopolitical commotion and economic buoyancy begs resolution. More than anything, it requires respected, visionary and morally sound political leadership. The faster the global integration and the more sophisticated the economic interdependence of the nations, the more "leadership deficit" is likely to emerge.
Global inflation is resurfacing after an abrupt end to the period of disinflationary dynamics of 2001-2004. A number of structural forces have gradually gathered momentum, heaping inflationary pressures on the global price structures. Among these are: an embedded cost-push impulse emanating from the super cycle of commodity prices; a steady rise in global military- and defence-related expenses which technically is equivalent to an artificial increase in effective demand placing upward pressure on global prices; and the global warming-linked shift in the energy mix, which has led to grain prices being re valued and commodities such as maize, soy, palm oil and sugar having been re priced substantially upwards.
These developments have a structural inflationary impact, particularly in the short term. Such slow but systemic inflationary impulses are potentially problematic because they cannot be addressed by monetary policy tools alone. As such, 2008 may well witness the fruitless struggles of the central banks to deal with inflationary pressures that are essentially "supply-side structural dynamics".
SA is reflecting many of the key features of the global political economy of 2008. Though the economy remains buoyant and is likely to maintain its growth momentum at above 4,5%/year, its underlying political stability is somewhat eroded. The rising political economic uncertainty in turn is bound to diminish the leadership's focus on the microeconomic faultlines that have emerged.
An unsatisfactory human resource development policy, a defective criminal justice system and a struggling export sector underlie an economy that has been buoyed by huge investments in the public and private sectors in recent years. Consequently, the economy faces considerable import-export imbalances, made worse in the short term by the high import intensity of the national capital expenditure programme.
The skills shortage, coupled with the rising costs of fuel and food, continues to increase cost-push inflationary pressures in the SA economy. The Reserve Bank's rate hikes have placed SA out of synch with the interest-rate cycle of its main trading partners. This will generate additional foreign exchange volatility next year.
Global and national trends portend 2008 will be a year of political economic realignment and commensurate market volatility.
Abedian is CE of Pan-African Capital Holdings
Ranking the Analysts 2009
