Denmark-based Saxo Bank has published its 10 outrageous financial predictions for 2020.
Continuing almost two decades of tradition, experts at the bank have made the predictions as ‘consensus-smashing forecasts’ that would ‘send shockwaves through the markets, if they come to pass’.
Anticipating 12 months marked by the disruption of the status quo at nearly every turn, the Danish bank argues that investors should be ready for anything. That includes:
- UK nominal growth doubling to 8%;
- Stagflation taking hold, rewarding value over growth stocks;
- European Central Bank hiking rates;
- Oil and gas industry emerging as surprise winners amid the mania over environmental, social and corporate governance (ESG);
- Rand/dollar rising from R15 to R20 as the world cuts credit lines to South Africa;
- Trump announcing America First Tax to reduce trade deficit;
- Sweden unleashing “huge fiscal stimulus” to quell anti-immigrant sentiment, driving a steep rally in the krona;
- Democrats winning the U.S. election in a vote led by women and millennials;
- Hungary leaving the EU;
- Asia launching new reserve currency to break its dollar dependence.
R20 a dollar
The standout for South Africans is the prediction that the rand will hit R20/dollar in 2020.
“South Africa closes out 2019 with riveting news, both good and bad,” it said.
“The good news was that the nation’s beloved Springboks rugby team took home the World Cup trophy. Their last victory was in 2007, a year which ended with rand/dollar below R7, versus R15 now.
“In carry-adjusted terms, the rand has fallen far less – only some six percent, though with plenty of volatility along the way. That is a near miraculous feat, given the bad news.”
The ‘very bad news’ is the South African government announcement late this year that to continue to bail out troubled utility Eskom and keep the nation’s lights on, the bank said.
It noted that the budget deficit next year is projected to balloon to its worst level in over a decade at 6.5% of GDP, a sharp deterioration after the government managed to stabilise finances at a near-constant -4% of GDP for the last few years.
“Late 2019 saw some of the most generous credit conditions for emerging markets in history and the market somehow managed to absorb this news without jettisoning the rand to new lows for the year,” it said
“But in 2020, the jig will be up for the country. A brief investigation of the maths shows us why.
“In 2007, the last time South Africa won the Rugby World Cup, GDP for the year was $309 billion in nominal USD. For the four quarters ending at Q2 2018, meanwhile, South African GDP was $338 billion in nominal USD.
“That rise may seem small — at less than 10% — but in constant US dollar terms (adjusted for US CPI), this means that the South African economy has shrunk a staggering 9% over the last 12 years.
“Worse still, the World Bank estimates that its external debt has more than doubled over that period to over 50% of GDP. ”
Saxo Bank said that Eskom fiasco is the straw that will break the back of creditors’ willingness to continue funding a country that hasn’t had its financial or governance house in order for decades.
“Other uncreditworthy emerging markets will be drawn into the abyss as well in 2020, with the most differentiated performance across emerging market economies in years.”
This will see the rand/dollar exchange rise from R15 to R20 as the country teeters toward default.
With reporting by Bloomberg.