Rian:

Well, the bad news is that the European financial crisis has not been resolved yet and is likely to cause more market volatility for some time to come. The good news, at least for now, is that incoming economic data mostly suggests the world isn't descending into a recession, unlike the sub-prime crisis of 2008/9, which triggered a deep recession. On the other hand, we should bear in mind that a worsening of the European crisis could still prompt another recession. Overall, in 2012 we can expect slow but sustained economic growth and low global interest rates – but markets will remain volatile as long as global investors fret about the uncertain financial situation in Europe and its potential impact on the world economy. In short, global economic and market risks have undeniably risen sharply in recent months.

Izak:

And, as always when it comes to your investments, the starting point is to ask: why am I invested or what is this investment for? If you're investing for retirement years from now, the likely volatility over the next few months should not bother you. In fact, you could use dips in the market to purchase more shares. But if you'll need your money in the next year or two (to finance a big holiday for instance), you need to be careful. The problem, as Rian says, is that interest rates are low almost everywhere, including SA. Therefore conservative investments will not yield much. You need to decide: is return on capital, or return of capital more important over the next year or two.

Rian:

Fortunately South Africa weathered the global storm well, thanks to our relatively healthy fiscal situation, but as the recent weakening of the Rand has demonstrated, we can never fully escape global events. Government debt is quite low (it's about 40% of GDP – compare this to 170% for Greece and about 100% for the USA). But we also need to tighten our belts over the long term, which means there'll be less scope for tax cuts in 2012 and a need for stricter control over government spending.

Izak:

Indeed, South Africa has managed its finances better than most developed countries, which is something to be proud of. But we shouldn't rest on our laurels. As consumers, many of us have gotten used to tax cuts and good salary increases to keep the party going over the past few years. For consumers, 2012 could well be a tough year. While income tax rates won't necessarily rise (yet), other taxes and user charges will continue to rise faster than the general inflation rate. Here one thinks of municipal rates, electricity tariffs, new tolls (in Gauteng), higher airport taxes, etc. Add to this muted economic growth where companies cannot afford generous salary increases and an interest rate increase somewhere late-2012, and the average consumer might feel the pinch. In a tough environment, saving for retirement often takes a back seat. This would be a mistake. The biggest friend an investor has is time.

Rian:

While the local economic recovery will continue, we expect the economy to grow by about two percent in 2012 as we will not fully escape slower global growth. While such a growth rate is far below what we need to make a meaningful dent in unemployment, it is a far better performance than the almost two percent contraction in the local economy in 2009 following the sub-prime crisis of 2008. The key driver of the local economic recovery has been increased consumer spending, thanks to low inflation and interest rates, and above-inflation wage adjustments. This should continue in 2012, but at a much slower pace, as higher inflation eats into household spending power. The weaker Rand will benefit SA's exporters, but it will make imported goods more expensive for consumers. Inflation is expected to peak between six and seven percent in 2012 before easing off. However, this higher inflation is unlikely to prompt the Reserve Bank to raise interest rates in the near future. If the Rand and oil prices at least stabilise at current levels, rates could remain flat through 2012, although consumers must be prepared for an eventual rise in rates.

Izak:

Although it's an environment of sluggish global and local economic growth, we shouldn't expect to see the kind of equity returns experienced over the past decade. Unfortunately, some investors got used to strong markets to compensate for a lack of saving. Similarly, many conservative investors were spoiled with very high real interest rates over the past decade. If Rian's projection is correct, money-market funds will probably deliver negative real (after inflation) returns in 2012. In other words, it is a tricky time for investors as none of the main asset classes (equities, bonds, listed property, cash) look particularly attractive. This is the type of environment where financial advisers can really add value by constructing appropriately diversified portfolios for each investment need. Finally, while a weaker rand will benefit exporters, as Rian points out, it does increase the cost of living for South Africans. Taking your individual circumstances into account, speak to your financial adviser or your broker about what would be an appropriate exposure to Rand-hedging assets, including foreign investments.

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Disclaimer: The above information is merely a forecast based on current economic data concerning the expected economic climate for next year. This is subject to change and is not regarded as advice.