The double dip question

Peter Gilmour, Chairman of RE/MAX of Southern African, says: “The market we are in at the moment is an emerging one that has come out of the downturn and is showing signs of recovery. It is important for property investors to remember that markets crash far quicker than they recover, and while we may hit a few bumps along the road, we are moving in the right direction. Unfortunately because negative market reports affect investor confidence so adversely, rumours of a second recession will slow market recovery even further. This could also lead to many investors missing out on opportunities that have presented themselves in the current market.”

Economists in the US have dubbed the period between December 2007 and July 2009 as the Great Recession. This is based on the fact that since the Great Depression in 1933, where Gross Domestic Product (GDP) was approximately 40% below the line, no recession has made any real impact on the economy until this period. The Great Recession definitely made its presence known, particularly in the US, and for many Americans it has never left.

While some experts in the US say that the country is once again back in a recession period based on the current negative GDP growth, they do predict that it will be far less harsh then the first. However, they say that the country will need an above-average growth to see a significant change in the market, with some saying that even if they begin growing at a 5% annual rate, it would take until 2018 to catch up to the long-term trend.

While locally consumers and property prices continue to feel the pressure and financial backlash of the past recession, many South African investors have begun to show interest in the property market and sales have continued to reflect a slight but steady growth over the past year.
Unlike the negative growth in the US, the South African GDP grew by 1.3% in the second quarter of 2011 over the previous quarter. While it was at a record low of -5.90% in March 2009, it has subsequently recovered quiet substantially.

“To a large degree the South African property market has mirrored that of the US, however, due to the monetary policies and the National Credit Act that was implemented before the recession, the effect of the bust has been widely mitigated. The reckless lending that was seen in the US resulted in their market taking a much greater knock than ours,” says Gilmour.

Gilmour concludes by saying that the South African market has been far steadier than the US market and has been protected by the pre-emptive policies that were put into practice.  Investors can take comfort in the fact that while the local market will be affected by what is happening in the foreign markets, it will not experience the same degree of decline.

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