The Return of the Great

2011 was a very confusing year; excellent diamond sales in the first half of the year followed by a big slump in the second half, USA battled with debt ceiling, the Euro zone countries faced larger problems of defaulting, the jasmine revolution in North Africa and the Middle East, a tsunami in Japan, all these resulting in volatility in commodity prices, disruptions to supply chains and general uncertainty has impacted businesses across the globe, slowing the recovery in both mature and emerging markets.  Over the year, fears of a double dip recession got stronger and seemed on the brink of the 1930s calamity, the question now is, will we see the return of the great depression in 2012?

Earlier this year at the FNBB budget dinner, colleagues brushed off fears of a double dip recession. There have been signs that the ‘apocalypse’ may not be eminent after all, In Europe things are looking promising; the first sovereign default in a developed economy has passed off without a problem though not easy; Greece is restructuring its debt. In America firms are hiring more and consumers are spending more. Industrial output jumped in January after surging in December by the most in five years, auto sales are booming. Consumer confidence has reached its highest point in a year and even the housing market is showing signs of turning around.

In Botswana we remain very wary, diamond prices are uncertain; mostly leaning towards a decline. Copper prices and other metals prices are expected to rise and then remain steady in 2012. Government budget has reached surplus after 3 years of deficit and there hasn’t been much reduction to government spending to affect the domestic market drastically. There are estimations for lower inflation in the second half of the year.

But is this a call for us to done our blue, black, white and bring on a Zebras win cheer type celebration? Definitely not, the worst might be averted but we still expect slow economic growth in 2012. Oil prices are not expected to fall anytime soon, rather we expect a rise in local fuel prices, though they are not at the historic high prices of 2008, they remain high enough to worry.

As the IMF and World Bank have stated, European countries need to stop focusing so intently on austerity and instead do more to generate growth. Collective action can help set the global economy on a more robust growth trajectory by fostering global demand rebalancing; however, the greatest challenge for the global economy in this slow growth environment is to raise productivity without losing job opportunities for the millions who are looking for reasonably paid jobs to support their living standards.