Cees Bruggemans: Our SA cat has nine lives?   

By Cees Bruggemans

It is important to realise what hasn't killed us so far, like the average cat supposedly having nine lives, in the way they have of surviving scrapes that would have been the undoing of other species.

And this also raises the question how many more lives we have left, and what we could survive next?

The Anglo-Saxon banking crisis of 2008 didn't kill us even if it forced some of us onto our bare knees. It did give the world a deep recession as 30% reduction in order levels sets in motion its own recessionary logic. Quick policy intervention then reversed this panic attack and the world started breathing again.

We couldn't sidestep that recession, and our mortgage lending business incurred a generational setback (resetting the dial), with property and residential building trades discovering they had been relegated for a decade.

But that crisis didn't kill us, even if its aftermath of slowing global development killed the commodity supercycle, with our Dollar export prices in heavy retreat since 2011.

The European existential crisis of 2009-2012 didn't kill Europe or the Euro, though there was endless speculation to that affect, some of it now resurrected by current Greek events.

The aftermath of that crisis, too, meant more stagnation rather than dynamic revival, also impacting our export performance and growth. But it didn't kill.

Domestically, Eskom blackouts since 2008 have been an inconvenient reminder that modernity runs on electricity. If its availability gets rationed, it keeps everything back, as much heavy industrial production and their exports, but also inhibiting new expansion. It assists in embedding stagnation and accelerates institutional decay.

But it didn't fatally stab our overall economy. Only a total system failure and the country going six weeks without electricity would fundamentally reset all our dials back by a century. That hasn't happened yet, but it remains a risk.

As to our labour climate and its many demands, and the inclination of some last year not to add just one zero but two, we don't have as yet a genuine wage/price spiral. Instead, we have a built-in steady preference for generous grease and an absolute abhorrence of hiring more people, except in the public sector, but even there they are now exploring the limits of follies past.

Instead, we seem to have institutionalised a remuneration gravy train of some 7%-8% annually in large parts of our economic spectrum, with some getting less and some more, giving a spread of 0%-15% for 99.9% of the labour force (including the unemployed and discouraged getting by on social allowances).

Productivity gains are notoriously low in this country, leaving a unit cost trend of about 6%. That is not excellent (compared to large numbers of our global trade competitors), necessitating steady Rand depreciation over time to retain some semblance of trade competitiveness, but it is an affliction that hasn't killed us off, even if it has assisted in making much of our labour expensive and shunned, deepening the insider/outsider dichotomy and setting us up for radical populism (that could kill the lifestyles of many now considering themselves comfortable insiders).

One of the great dreads of recent years has been that once the world economy has sufficiently recuperated from its major crises, the rightsizing of monetary policies could kill us off.

Last year, 2015 prospects came increasingly defined as some kind of moment of truth where especially the Americans would proceed with the further unwinding of their unconventional monetary policy, in the process setting in motion capital disturbances worldwide.

Its killing potential for us even had a name: sudden capital reversals, flight by another name, sinking the currency, imparting major inflation and interest rate shocks, potentially overtaking in severity the disorderly events of 1998 and 1985.

Instead, there were a few more post-crisis global adjustment instalments to be absorbed, of which Japan's Abe shocks were early harbingers, with belated follow ups from collapsing energy prices and Europe also extending and greatly intensifying its monetary intervention regime.

These combined events have had the result of engineering major currency depreciations and a falloff in global inflation this year by at least 1%, in turn making key central banks even more cautious about their policy stances.

They all manfully insist inflation expectations will hold near the 2% desired threshold, but Europe and Japan remain fearful of deflation detours, many Emerging Markets have decided to ease their interest rates (in attempts to keep their currencies competitive against some of the majors?), Switzerland has ended its Euro floor peg from fear of having to absorb too many depreciating foreign assets (Euros).

And the Americans? Domestically nicely reviving now, even if 4Q14 GDP came in at 2.6% growth and the year 2014 did only 2.3%, not all that different of the 2.2% of 2013 and 2012. But besides such still modest GDP growth, the Fed also keeps one weary eye on the turbulent state of the world and the other eye on the rising Dollar, and quietly asking whether when combined with sharply lowered energy prices it can keep US inflation low for longer, and wage growth slow, sufficiently so to warrant yet further delay (and certainly slowness) in starting interest rate normalisation.

It feels as yet another stay of execution in the making, as much for American financial markets, going by 10yr Treasury yields of 1.7%, as the world at large, in particular Fragiles at the mercy of far more discerning capital flows now more severely differentiating risk and supposedly punishing it wherever found.

So that could have killed us this year, and may still do so in some other year sometime in the future, especially if the American remedy is applied with greater heavy-handedness than so far assumed.

But not for now, instead SA and countries like her getting yet more reprieve to live another day as if not a fragile. Yet we know, deep inside, that we are, as the MPC statement this week inferred in so many different ways without the need to get explicit and name the thorny rose by its true name.

So what will kill us? For many this is a fact, not a question, like taking rat poison in liberal quantities while proclaiming all to be fine. Though rats cannot resist poison, and our rats are no different, it does hold out hope that once the rat family has greatly diminished, the rest of us can continue with a reconfigured political landscape and the will to reform sensibly, provided of course even bigger rats don't invade the vacated territory up for grabs.

This will make the coming decade probably even more interesting than the past slow-rat-poison one.

But will it kill us off? I am not so sure. Brazilian cockroaches are said to be capable of surviving a nuclear blast. Mao took the view that China could lose a few hundred million people in a nuclear war and still be fine (everything being relative to megalomaniacs).

So perhaps less dread, and more focus on building the future road? As the SARB implied this week, it is more reform we need rather than more monetary accommodation. But then lowered inflation has its own logic, as we may discover through next year. The proof of that will be in average wage settlements. And those as we know from times past could be sticky, implying more real income gains for plush insiders as inflation falls, and yet less hope for desperate outsiders as job appetite remains poor, deepening rather than easing our main national insider/outsider conundrum.

A rather different year shaping than discounted only three months ago. With the main focus on the Puss in Booths.