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Cape Town – By the end of 2013 the rand could end at R9.75 to the dollar, according to Nomvuyo Guma, an economist at Standard Bank [JSE:SBK].
She also foresees that the South African Reserve Bank (Sarb) could have a window of opportunity to cut interest rates by another 50 basis points in the first half of 2014.
Yet she thinks 2013 will end up being a cyclical low and South Africa could even suffer another ratings downgrade this year.
“Has slow become the new normal in the South African economy and will it remain in first gear?” she asked during a presentation at an event the bank held at the Cape Town International Convention Centre on Wednesday night.
There is a great deal of turbulence in financial markets at the moment, but in her view inflation in SA has peaked.
In her view Sarb, however won’t change interest rates in the short term. “Once the US Federal Reserve Bank starts tapering – we think in September – markets will settle... we think,” she said.
“We think once this turbulence has settled, there will be a window for Sarb to cut rates again. We think it could bring the rate down by 50 basis points in the first half of next year.”
SA lagging other emerging markets
The gap between South Africa’s economic growth and that of other emerging markets in general is growing wider and this is of concern to Guma.
Standard Bank expects emerging markets to grow by about 6% in 2013, but “pencilled in” only about 3.1% for South Africa.
“All emerging markets need to trade somewhere and they are not trading as much amongst each other as we expected,” said Guma.
The big contraction in SA’s manufacturing industry is of great concern to Guma, as this sector is the second largest contributor to the country’s GDP.
Business confidence
“All of the strike activity and uncertainty about next year’s elections have led to business confidence levels being low – almost the same low levels as in 1994,” she said.
The negative impact of labour unrest in the country, coupled with political considerations in the run-up to the 2014 elections, have made businesses reluctant to invest.
Consumption and employment
“South Africa’s consumption based recovery now appears under threat, due to the slow growth in households’ disposable income,” she said.
“Household spending is about 60% of GDP and it underpinned SA’s recovery from the recession. Now this major support factor is faltering."
The sluggish employment growth is yet another ongoing concern. South Africa lost about a million jobs in one year during the recession, and even now, five years later, these lost jobs have not been gained back.
One potential positive impact she pointed out is the government’s proposed R3.6 trillion infrastructure plan.
Tertiary sectors like services and financial sectors seem to have the highest potential for growth in the medium term at the moment. Since these, instead of mining, are more important in the Western Cape, this province could still see some growth.
International trends
“Internationally, the economic recovery is still at multi speeds with Europe still chugging along, while more and more questions are raised about China,” she said.
China was the engine of growth before 2008, but now it appears less so.
Guma thinks not even a prospect of 7% growth is likely for China anymore. That will impact on Africa and South Africa as far as exports are concerned.
- Fin24
She also foresees that the South African Reserve Bank (Sarb) could have a window of opportunity to cut interest rates by another 50 basis points in the first half of 2014.
Yet she thinks 2013 will end up being a cyclical low and South Africa could even suffer another ratings downgrade this year.
“Has slow become the new normal in the South African economy and will it remain in first gear?” she asked during a presentation at an event the bank held at the Cape Town International Convention Centre on Wednesday night.
There is a great deal of turbulence in financial markets at the moment, but in her view inflation in SA has peaked.
In her view Sarb, however won’t change interest rates in the short term. “Once the US Federal Reserve Bank starts tapering – we think in September – markets will settle... we think,” she said.
“We think once this turbulence has settled, there will be a window for Sarb to cut rates again. We think it could bring the rate down by 50 basis points in the first half of next year.”
SA lagging other emerging markets
The gap between South Africa’s economic growth and that of other emerging markets in general is growing wider and this is of concern to Guma.
Standard Bank expects emerging markets to grow by about 6% in 2013, but “pencilled in” only about 3.1% for South Africa.
“All emerging markets need to trade somewhere and they are not trading as much amongst each other as we expected,” said Guma.
The big contraction in SA’s manufacturing industry is of great concern to Guma, as this sector is the second largest contributor to the country’s GDP.
Business confidence
“All of the strike activity and uncertainty about next year’s elections have led to business confidence levels being low – almost the same low levels as in 1994,” she said.
The negative impact of labour unrest in the country, coupled with political considerations in the run-up to the 2014 elections, have made businesses reluctant to invest.
Consumption and employment
“South Africa’s consumption based recovery now appears under threat, due to the slow growth in households’ disposable income,” she said.
“Household spending is about 60% of GDP and it underpinned SA’s recovery from the recession. Now this major support factor is faltering."
The sluggish employment growth is yet another ongoing concern. South Africa lost about a million jobs in one year during the recession, and even now, five years later, these lost jobs have not been gained back.
One potential positive impact she pointed out is the government’s proposed R3.6 trillion infrastructure plan.
Tertiary sectors like services and financial sectors seem to have the highest potential for growth in the medium term at the moment. Since these, instead of mining, are more important in the Western Cape, this province could still see some growth.
International trends
“Internationally, the economic recovery is still at multi speeds with Europe still chugging along, while more and more questions are raised about China,” she said.
China was the engine of growth before 2008, but now it appears less so.
Guma thinks not even a prospect of 7% growth is likely for China anymore. That will impact on Africa and South Africa as far as exports are concerned.
- Fin24
