‘When the United States sneezes the rest of the world catches a cold’. That bit of economic wisdom remains true today and South Africa may unfortunately share the brunt of a potential US property price meltdown. That’s beyond the potential effect on local housing prices and may hit exports, the Rand and local financial markets.

A popped US property bubble would first cause US consumers to cut back heavily on their rate of consumption. Those selfsame consumers also have a bias for foreign made goods or goods that other countries export to the US. That in turn includes South Africa and as a result may negatively affect South Africa’s trade balance with the US. Particulary since US: South Africa trade is slightly in favour of South Africa.

How the property bubble might pop could in turn have an effect on the Rand. That would be done by rising US interest rates or risk yields and would encourage ‘hot money’ to leave South African markets for the then higher US rates of return. That would in turn affect the Rand. The country’s foreign exchange reserves are markedly stronger than at the time the previous two panics, so the severity would be reduced. However there may at least be substantial volatility going forward.

Local business confidence would also be negatively affected by the global downturn in business. However the US consumer’s need to be frugal would also impact on global production. That would in turn affect global demand for commodities with which to manufacture goods and therefore may cause commodity prices to drop. South Africa still remains overly reliant on such exports as well.