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14 predictions for 2014

AN INTERESTING year awaits SA with a general election, changes in the economy and more crooked politicians and government officials stealing money meant to help the poor. Here are 14 predictions for the year 2014:

1. Lacklustre economic growth

Most economists and organisations expect only modest growth for the economy in 2014 – although at a somewhat faster pace than in 2013.

Most predictions range from 2.5% to just below 3% compared to the expected growth of 2% in 2013, after economic growth slowed to only 0,7% in the third quarter of last year.

According to the International Monetary Fund (IMF), gross domestic product will grow by around 2,9% in 2014. The IMF, in line with local economists, reduced their outlook for economic growth for 2014 significantly a few months ago when wide-ranging strikes affected mining production in the earlier part of the year and manufacturing output during the second half of 2013.

Economic activity also slowed due to lower consumption spending by households, as disposable income came under pressure from the rising fuel price and other administered prices. Consumer confidence also declined, while personal debt reached such high levels that debt-fuelled consumption has reached a peak.

Most economists note that the economy is vulnerable to any major setback, and it seems that most would be likely to reduce rather than increase their forecasts during the new year. A major risk to the SA economy and economic growth remains the reliance on foreign capital inflows, which can be unsettled by any of a vast number of local and international uncertainties.

2. Inflation

The inflation rate increased steadily month after month during 2013. We have also seen a steady increase in expected inflation for 2014 month after month. Older forecasts pegged inflation in 2014 at around 5.3% to 5.5%, but newer forecasts are mostly around 6% and a few even higher.

The Reserve Bank’s most recent quarterly economic report included the results of a poll of different economists, business organisations and trade unions, all of which expected inflation to remain around 6% for the next few months.

Other recent forecasts include that of Standard Bank, which sees an average inflation rate of 6% this year compared to around 5.6% in 2013, and a forecast from Absa Capital, which estimates inflation at 6.1% this year.

The weaker rand, SA’s high propensity to import consumer goods and our reliance on imported oil are among the factors that are to be blamed for higher consumer and production prices.

3. Interest rates

After the Reserve Bank’s last monetary policy committee meeting, governor Gill Marcus remarked that concerns about higher inflation and the possibility for higher interest rates dominated the discussions, although the decision to keep rates unchanged was unanimous. In addition, the bank has warned the public that interest rates are bound to increase from the current 40-year lows.

Economists differ on the timing of a possible interest rate hike, but are mostly in agreement that rates are set to go up. At the moment, the most likely scenario is that we can expect an increase of 50 points anytime from the middle of the year onwards.

4. Gold price

The gold price has had a strong run from around $240 per ounce some 13 years ago to a high of just shy of $2 000/oz in 2011. During the last two years, the gold price was mostly range-bound with a bias towards lower prices.

Although we have seen a maverick prediction of a gold price of $6 000/oz this year, the more reliable analysts are predicting lower prices as the international economy continues to recover and paper assets win back their lost confidence.

The revered Thompson Reuters GFMS gold market report notes that the gold market already saw an exodus of professional investors in 2013 and gold holdings by exchange-traded funds decreased by 26%, forcing the gold price down by 30%.

Gold received support at lower levels as demand for gold jewellery and from smaller investors increased, but this support quickly disappears when prices rise. Overall, Thompson Reuters GFMS sees gold increasing to $1 500 in the first few months of 2013, but then declining again as central banks and large investment funds start to sell again.

SA investors in gold coins, investment bars and gold-backed investment products were mostly shielded from the sharp price drop during the last two years, compliments of a fall in the rand. It will be interesting to see how these investment schemes cope with a third year of static gold prices and a more stable rand.

5. Exchange rate

It is difficult to solicit a confident prediction on the exchange rate without a whole list of assumptions, and a longer “but if” list. These uncertainties include the risk of capital outflows if the SA economy and investment markets lose favour, more industrial action, uncertainty surrounding the elections and campaigning as well as many international events.

Trading Economics publishes forecasts based on analysts’ expectations and mathematical models on a range of economic figures. They predict an exchange rate of R10.74 per dollar for 2014 and R10.94 in 2015.

6. Petrol price

The new year started on a bad note, with a hangover and an increase in the petrol price. Unfortunately, it is set to get worse. An exchange rate of closer to R11 and continued strife in oil-producing countries indicate further petrol price hikes.

Demand for oil and oil prices are set to rise as global economies recover with an ever-increasing demand for energy. It won’t be a surprise if fuel prices reach R15 per litre in 2014 - and most probably even higher.

7. Investment returns

 Most market commentators and fund managers forecast lower investment returns in 2014 than during last year.

During the last year, the JSE ignored most negative news and reached a new record high amid enough volatility for asset managers to be able to squeeze more beta performance out of their portfolios. JSE indices and unit trusts equally indicated a good year on the JSE.

Shares are currently high, given the fairly low expected economic growth scenario, the possibility of higher interest rates and unknown factors that might interrupt earnings flow in an election year. It is noteworthy that the price/earnings ratio on the All-share index is currently around a historic high of 18 times, usually seen before a period of strong earnings growth before a market correction.

On the JSE, stronger global growth and a weaker currency will help mining and commodity companies, but these shares are quite pricey already. There is not much value to be had in banking shares and industrials either, leaving investors only the option to be very brave and get in quickly whenever the market dips on bad news.

Cash and bonds remain uninspiring, with current low interest rates and capital adjustments once interest rates increase. Property and property trusts offer good value with higher yields, but at the mercy at higher interest rates which might decrease capital value and ultimate returns.

8. General election

The SA political scene is growing into a bigger circus year after year, with a ballot list that is getting longer and longer with each election. Several new political parties were formed last year to contest the election, most of which can be dismissed as a waste of time. But then, maybe there are enough drug users in the Cape to vote their dealers into parliament.

Agang SA, launched by former businesswoman Mamphela Ramphele, and Julius Malema’s Economic Freedom Fighters seem to be two of the new parties which might get more support, each hoping to have more success at the polls than Cope a few years ago.

Forecasts of the outcome at the polls suggest that the dominant ANC might lose its two-thirds majority. Predictions indicate that the ANC might get anywhere from 55% to 62% of the votes. The Democratic Alliance would probably hold on to the Cape Province and might make some inroads into Gauteng, but their stated aim to win Gauteng Province seems to be based more on hope than fact.

9. Property prices

Property prices are set to increase strongly this year, as prices of existing homes have been lagging building costs by far. The most recent figures from mortgage providers and estate agents show that house prices already started to recover during 2013.

FNB noted that prices went up by some 12% last year, while estate agents such as Pam Golding Property CEO Andrew Golding noted that activity is increasing and prices are firming.

10. Corruption will remain high

Corruption has become entrenched in the government, political parties and government enterprises. Just about every state department and every parastatal has been fingered in some scandal or another, from the president’s office down to the clerks that pay welfare grants to the poor. A list of larger corruption cases published by Corruption Watch makes for discouraging reading.

Our most disturbing prediction under this heading is that Public Protector Thuli Madonsela will be axed for not bending to political pressure to white-wash the spending on President Jacob Zuma’s own little family town.

Everybody else who has stood up against corruption has been redeployed, or their organisations have been taken apart very quickly. One can only speculate if Finance Minister Pravin Gordham’s sudden decision not to be available for another term has something to do with his recent statements about corruption and his actions to stem the tide of crookery, such as taking away top government officials’ credit cards and putting stricter limits of buying luxury cars.

11. Income disparity to rise

SA's worst problem and major concern - that of the huge disparity in income between rich and poor – will worsen even more in 2014 as higher inflation swells the value and income of the wealthy, while reducing the living standards of the poor. In essence, a large part of the population will struggle to buy their daily bread while the rest drives past in shiny cars.

The 2011, SA had the largest income gap between rich and poor in the world, according to the Gini coefficient which measures the distribution of income in a country. In practical terms, there are instances of rich businessmen earning millions per month, while minimum wages for workers are set at below R200 per day - for the lucky ones who have jobs.

12. Shabir Shaik survives another year

Shabir Shaik, convicted of fraud and corruption in 2005 and sentenced to 15 years' imprisonment on each of two counts of corruption and three years for fraud (effectively to serve 15 years), served only two years and a few months of his sentence before being released on medical parole for being terminally ill.

He is bound to receive international acclaim this year for the longest-surviving terminally sick man, having lived a remarkable five years and still playing good golf.

13. Western Province to win the Currie Cup

Western Province will win the Currie Cup and the Stormers will win the Super Rugby. Sorry, just joking! There is no evidence to back up any of these predictions. At this stage it would be an improvement if they stayed away from pink rugby jerseys.

14. SA to enjoy life

 Whatever 2014 holds in store, South Africans will meet the challenges and enjoy life more than anywhere else on earth.

 - Fin24

*After chasing money on the JSE for 15 years, Adriaan Kruger is now living a relaxed lifestyle in Wilderness and lectures economics part-time at Nelson Mandela Metropolitan University.

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