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EU recovery could be good news for SA

Johannesburg - Europe is recovering from economic problems caused by the sovereign debt crisis and this turnaround will hopefully stimulate increased trade with South Africa, according to Edward Dreyer of Grant Thornton Johannesburg.

"However, Fitch and Standard and Poor’s downgrade of SA’s sovereign credit rating to “negative” and “BBB-” respectively in June 2014 means South Africa is in for a daunting journey in the months ahead," said Dreyer.
 
According to Grant Thornton’s International Business Report for 2014, entitled The Future of Europe, the Eurozone is expected to post modest growth in 2014.

This is as unemployment and debt levels continue to creep downwards, while measures of consumer and business confidence are rising.

The majority of European businesses are open to more integration within the European Union (EU), but attitudes in Germany and France have hardened.  

Business optimism has also risen across the Eurozone from 8% to 25% over the past three months.

“The recovery in Europe is good news for South Africa as the continent is one of our largest trading partners,” said Dreyer.

“And despite Germany’s negative sentiment towards greater eurozone integration, the country is a principal international trading partner with South Africa, accounting for 7% of our exports and 11 % of imports, as are the United Kingdom and Netherlands."

Knock-on effect for SA

He said the fact that Europe is upbeat and showing recovery from its economic woes will hopefully have a knock-on effect on SA in terms of a positive impact on demand for South African goods and raw materials.

“There is talk of South Africa heading into recession – indeed, some economists believe we’re in one already. We therefore need every bit of trading activity possible to move our GDP forward and stimulate the economy,” said Dreyer.

SA would be set to benefit if European countries start looking further afield for business opportunities outside Europe.

“As a net exporter of goods there’s an urgent need for us to boost imports to close the gap,” said Dreyer.

“We are the EU’s largest trading partner in Africa and several European businesses looking towards expansion into Africa choose to do it from this country.”

The research shows that the picture across Europe is much brighter now than it was twelve months ago - especially in Ireland, where the bailout programme has ended and business optimism has rocketed.

There’s also improvement in other troubled economies like Portugal and Spain, both of whom are turning to exports again in a bid to exit recession.

“However, the recovery is fragile – Europe is not out of the woods just yet. Deflation is a growing concern, as is the plight of youth unemployment which is still unacceptably high," warned Dreyer.

"The situation in the Ukraine is also creating uncertainty. Against this backdrop, a loss of support at the heart of Europe’s business community is to be avoided at all costs if growth is to continue and the region is to strengthen.”

- Fin24

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