South Africa’s Stock Market Rollercoaster

According to Economics professor at the University of Stellenbosch Business School (USB); Andre’ Roux, South Africa’s economy is faced with the worst of both worlds – a combination of rising inflation and stagnant GDP growth, which leaves little room for it to maneuver.

“Economically – speaking the year 2016 sucked, Roux said in his overview of the state of the world economy, “but the next two years will also suck from the hangover of what happened in 2016.”

Besides the threat of protectionist utterances by world leaders, such as US President Donald Trump, which could lead to a slowdown in global goods trade growth among other, the world is facing tepid economic growth and low inflation.

Roux further added that “there is also a growth in government debt worldwide – a result of the solutions world economies applied to solve the 2008 global economic recession.”

According to Fin24, interest rates are at historical lows, except in the US where there’s a slight uptick and were modest increases are expected over the next few months.

Shifting to China, Roux said the country is re-calibrating its economy by reducing its reliance on consumer goods and replacing it with services and by encouraging consumer spending. “In this period of adjustment there has also been a slowdown in the Chinese economy from about 10% growth down to 6.6%. This in turn has a bearing on commodity prices,” Roux said.

Standard Bank head of commercial banking Karl Gotte said the global economy faced enormous challenges in 2016 due to stagnant global trade, lower investment and increased policy uncertainty.

Kevin Lings, chief economist at Stanlib, said SA’s trade balance has generally improved over the past year, at least on a trend basis, helped by a combination of slowing import growth and a pick-up in exports.

Higher international commodity prices have provided welcome relief to SA’s balance of payments in 2016.
According to the Nedbank Group Economic Unit, trade figures will remain highly volatile due to both global and domestic factors. The unit said the figures are volatile and have no direct impact on monetary policy in the short term.

However, according to Fin24 – the upside is that Roux believes GDP could grow to 1.1% in 2017, thus avoiding a full-blown recession.

There are risks to this “more benign” outlook, Roux said, such as state capture, populism, exchange rate volatility (although the Rand showed good recovery the last couple of months) as well as the possibility of a ratings downgrade to junk status.