This time last year, Top Companies argued that SA was likely to sustain growth rates around 5% into 2008 and beyond, "as long as the lid can be kept on simmering inflation and the global environment stays benign".

Well, the chickens have come home to roost. Twelve months ago nobody had heard the phrase "subprime crisis", now it is part of the global lexicon. At the time, an oil price of US$120/barrel, the rand crashing through R8/$, a doubling of staple food prices, and double-digit domestic consumer inflation would have been viewed as a nightmare scenario. And yet it has all come to pass. SA will be lucky if it achieves growth of 3,5% this year.

A good deal of SA's economic woes are externally generated. Global energy and food inflation has resurfaced over the past two years.

Consumer spending has been the driving force behind SA's run of 5% average economic growth rates over the past three years. But as a result of higher food and petrol prices, Econometrix director Tony Twine estimates that discretionary spending power has fallen by 40% in two years.

To slow rising inflation, the Reserve Bank has hiked the repo rate by 450 basis points over the past 22 months. This has accelerated the slowdown in consumer spending.

Though some are predicting a domestic recession (especially if the Bank continues on its tightening spree), the consensus is that investment-led growth buoyed by infrastructural spending will put a floor under growth's fall.

There is some concern, however, that private-sector investment may be compromised by higher interest rates and Eskom's inability to guarantee future power supplies. There is also the question of how this investment will be financed, given that foreign capital inflows have slowed dramatically.

"The problem is that when you talk to foreign portfolio investors, they see only that SA's current account deficit is one of the largest in the world, inflation is one of the highest, interest rates are likely to go up and growth forecasts are being downgraded," says Nazmeera Moola, head of macro strategy at Macquarie First South.

Though the rand's woes primarily reflect global uncertainties that have caused foreign buying of assets to dry up in all emerging markets, SA's case has been compounded by politics and Eskom.

Political analyst Steven Friedman says SA is in "an upward phase of the gloom cycle" right now, mainly because of uncertainty over the future policies under a Jacob Zuma presidency.

Barnard Jacobs Mellet economist Elna Moolman agrees that sentiment is overly negative. "People are forgetting that SA still has in its favour the fact that commodity prices are at record highs, which will boost local mining equities; it enjoys a relatively high interest rate differential; and GDP growth is still likely to be reasonable."

However, inflation expectations have deteriorated sharply of late and labour unions are saying wage increases under 10% will not be countenanced. This makes further rate hikes more than likely.

Clearly, bullish growth forecasts should, for now, be consigned to the rubbish heap.