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To: long-gone who wrote (15080)	7/31/1998 6:31:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 117063

ANALYSIS-Is South Africa heading for stagflation? 04:12 a.m. Jul 31, 1998 Eastern By Ed Stoddard JOHANNESBURG, July 31 (Reuters) - In polite South African economic discourse, there is an ''S'' word that is almost never mentioned -- stagflation. But as economic growth grinds to a halt under the weight of punitive interest rates and inflation starts to climb on the back of a sharply weaker rand, economists say the spectre of stagflation is looming. The term, first used to describe Britains bleak situation in the mid-1970s, refers to the unenviable combination of subdued or stagnant growth and high inflation, often accompanied by high unemployment. Some say South Africa's economy is already there. ''We have it (stagflation) now because inflation has begun to turn and growth is stagnating,'' said Edward Osborn, an independent economist. Colen Garrow, an economist with ABN-AMRO, told Reuters there was at least symptomatic evidence of stagflation. ''There is a growing chance that we could face that scenario over the next six to eight months. It will take a while for the growth cycle to kick in, and it requires interest rates to fall,'' he said. ''But if you have an easier monetary policy, you will have a much quicker response on the inflationary side than on the growth side.'' Inflation in June ticked up to 5.2 percent on a year-on-year basis from 5.1 percent in May. The economy grew by a sluggish 0.7 percent in the first quarter on an annualised basis and the unemployment rate is over 30 percent. Future growth prospects have been dimmed as the South African Reserve Bank has forced interest rates up six percentage points to try to shore up the rand, which has lost over 20 percent of its value against the U.S. dollar since it was hit by speculators in late May. Osborn said he saw this bearish situation persisting for some time. ''I personally feel that growth will only be 0.5 percent for the year...which is basically stagnant. We will still have a pretty stagnant economy next year,'' he said. ''With high interest rates, growth is entirely dependent on export performance...and there is no early prospect of a turnaround in commodity prices,'' he said. To top it off, Osborn cited the inflationary pressures stemming from the weaker rand and warned that wage demands could push prices up further. ''The other thing that is potentially dangerous is an explosion of wage demands in the industries, like mining, where the rand effect has been beneficial to profits,'' he said. ''Once that is triggered it will run into other domestic industries and add to the upward pressure on the costs of imported goods,'' he said. Not all economists agree that the future is so bleak. ''South Africa is definitely not entering a period of stagflation,'' said Chantal Friedman, an economist with Banard Jacobs Mellet. ''I think some people in the market have overrated how far inflation will reach,'' she said, adding that South Africa was not on the verge of a sustained period of low growth and high inflation. Friedman said, however, that recession was a possibility if interest rates remained persistently high, although she said the current risk was slight. Others see a very real possibility of a recession gripping South Africa as it heads for stagflation -- a scenario that would dash the government's hopes of pulling millions of blacks out of the depths of poverty. ''We have a real risk of recession and could see the first sign in the growth data for the second quarter due out at the end of August,'' said Garrow. Garrow said a sustained downturn could be on the cards if the weaker rand failed to spur export-led growth. ''The rand's depreciation won't do us any good if Asia and other global customers do not have an appetite for South African goods,'' he said. ((Johannesburg newsroom, +27 11 482 1003, newsroom+reuters.co.za)) Copyright 1998 Reuters Limited