South Africa’s economy is experiencing an economic bubble similar to the kind that precipitated the downfall of Western economies in 2008. Even though the South African economy has received a bit of attention after the Rand fell considerably to the US Dollar, some analysts foresee a looming financial crisis in a couple of years for the emerging markets, including South Africa.
After the surge of investment in emerging markets following the Global Financial Crisis, a bond bubble was created. This lead to ultra-low borrowing costs resulting in government-driven infrastructure booms, dangerously rapid credit growth and property bubbles. Analysts fear that South Africa’s weakening currency and large current account deficit, coupled with the country’s credit and asset bubbles popping will cause :
- The credit expansion will turn into a bust
- Over-leveraged consumers will default on their debts
- Banks will experience losses in their credit portfolios
- Unemployment will rise
- The economy will contract
- Property, the rand currency, stock, and bond prices will fall, resulting in higher interest rates
- The basic materials sector will experience pain as economically sensitive commodities fall in price; mine closures are likely
To read more on South Africa’s economic bubble, click here.
[ Source : Forbes ]
