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CEOs expect rand to depreciate in 2017

Johannesburg – CEOs believe the rand’s recent gains will be short-lived and expect the local unit to depreciate even further, according to the Merchantec CEO Confidence Index.

The forward-looking index, released on Wednesday, declined 2.1% for the fourth quarter of 2016. It is now below the neutral score line of 50, at 47.9.

“Factors such as political uncertainty, government infighting, the state capture report, growing unemployment rates, nuclear plans, and B-BBEE policies all remain a concern for CEOs regarding the state of our economy,” the report stated.

However, economists believe the rand may stabilise in the new year. In a media briefing on the outlook of the economy earlier this week, Investment Solutions chief economist Lesiba Mothata said the rand could continue to appreciate on the back of commodities which may do better, as it is a commodity-based currency.

Fin24 previously reported on Old Mutual Investments chief economist Rian le Roux's expectations for the rand. He indicated that the unit is “firming up”, but warned that it remains “volatile and vulnerable” to South African politics and low foreign exchange reserves.

The CEOs' expectations for a depreciating rand are linked to a dip in confidence levels regarding the economy.

The confidence index declined across six industry sectors. This is because CEOs believe current economic conditions are “deteriorating”. According to Statistics South Africa, the third quarter’s GDP growth was a mere 0.2%. Economists expect growth to be lower than Treasury’s projected 0.5%.

Read:  Warning of SA's growth falling below 0.5%

The index indicates that 9% of CEOs believe economic conditions are “substantially worse” compared to six months ago. Overall, the industry growth outlook softened by 10.1%. Also, 39.5% of CEOs feel their planned investments in company and business activities are “moderately worse” compared to six months ago. But 58% of growth expectations for their companies is unchanged.

In a statement issued by Stanlib chief economist Kevin Lings following the recent GDP growth data, he indicated South Africa remains at risk of “slipping into a recession”. He also stated that political tension and policy uncertainty are contributing to weaker business and consumer confidence.

The rand was trading at R13.52 to the dollar just before 14:00.

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