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Reasons for rand weakness double

Johannesburg - The rand now has a better chance of getting to R15 to the dollar in three years than going to R10 to the dollar, according to economist Mike Schüssler.

"There is probably also a fair chance the rand could go even lower, to say R17, but at present that cannot be a central view and more likely to be a very negative call, he said in a report for TreasuryOne.

In his view inflation is likely to be closer or over the upper end of the target and government’s ability to get things done is going to get more difficult.

"The poor without jobs will be the ones to feel much of the pain, but for the first time since the great recession the middle class will again feel their world close in as inflation and job opportunities all come under pressure," warned Schüssler.

Downgrades more of a certainty

In October the International Monetary Fund (IMF) lowered its 2014 growth forecast for SA to 1.4% - a third of the rate of sub-Saharan Africa and lower than many developed countries - and predicted that next year growth will be only 2.4%. It projected an average growth of only 2.4% for SA for the six years to 2019.

"Debt to gross domestic product (GDP) will increase to near 60% of GDP - this while unemployment remains at close to 25% up to 2019," said Schüssler.

"The likelihood of further credit ratings downgrades are now more than 50%. In fact downgrades are becoming a certainty and junk status is not more than a few years away based on these IMF forecasts."

He said privately many a CEO and CFO are voicing increasing concern over government interference getting ever more.

"Foreigners are now more concerned about their SA assets," he said.

"It is clearly not only SA that is having problems. Europe does too, but the big factor here is there is no other emerging market country with such high unemployment and such weak growth prospects along with twin deficits that I can think of."

That is why Schüssler thinks the era of an ever weaker currency is here again.

"I believe the currency will not be a simple one-way ticket, but the reasons for weakness have doubled at least. The end of fairy-tale economic policy is now also rapidly coming and realism will have to enter government thinking and action again," he concluded.

- Fin24

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