The Euro debt crisis and inflationary pressure poses an economic risk for the Eastern Cape.
However, ECDC chief economist, Mxolisi Lindie, says the depreciating rand will cushion the blow for exporters in 2012.
Lindie said in a statement on Monday that the impact of the Eurozone crisis could also be more severe that the 2008 recession, with the automotive sector likely to be affected the most.
"The Eastern Cape Economic Profile and Outlook 2010, reported a quarter-on-quarter contraction of 1, 8% in Eastern Cape output in the fourth quarter of 2008 and by more than 6, 7% in the first quarter of 2009," he said.
"The province lost about 57 000 jobs between the third quarter of 2009 and the third quarter of 2008, while the unemployment rate over the same period declined from 27, 4% to 26, 8%."
"According to data provided by Stats SA, the seasonally adjusted GDP of the Eastern Cape declined from an annualised rate of 4, 4% to 1, 3% in the second quarter."
"The slow down was caused by poor performance of agriculture, mining and manufacturing output. In contrast the tertiary sector experienced a slight increase, making the service sectors the largest contributors to growth in the second and third quarters. I don't expect us to experience growth but we could maintain current levels going forward this year," says Lindie.
Global economic conditions for the quarter ending December 2011 were unfavourable for growth and development in advanced economies, he adds.
"GDP in Europe slowed down as a result of the debt crisis and austerity measures faced by numerous Euro zone countries.
Exports to Europe constitute between 35% to 40% of South African export for agricultural goods, automobiles and other manufactured good in which Eastern Cape trades to a large extent."
"The European Union is a major trading partner for high level developing countries and South Africa is no different. Right now European consumers are under pressure and facing austerity measures, so our vehicle exports will suffer," Lindie says.
Eastern Cape is South Africa's less developed province, food consumption constitute a substantial basket of goods in the total Consumer Price Index, Lindie says.
"One of our major drivers of costs in the Eastern Cape is basic food stuff and then fuel driven by high costs builds into transportation costs," Lindie explains"The price of fuel influences food inflation and prices of other goods because transportation is factored into the retail price."
According to the latest Consumer Price Index (CPI), inflation went above the target band of three to six percent in the third quarter of 2011.
"The next round of wage increases that is likely to take place could further fuel inflation and we could see an increase in interest rate possibly by the middle of the year," says Lindie.
High fuel and electricity prices raise the costs of doing business, while consumers also feel the pinch of inflation.
Meanwhile, Eastern Cape Development Corporation, chief executive, Sitembele Mase, says he expects an increase in demand for financial and non-financial services as business seeks ways to beat the economic slow down.
"Rising costs have eroded the income of consumers and depressed the earnings of enterprises. This will put pressure on development finance institutions such as the ECDC to respond to increased loan applications," says Mase.
