Economists remain concerned about South Africa’s subdued growth, on the back of lower consumer spending, weak business confidence, and theatrical politics.<\/p>\n
In a panel discussion on the state of the South African Market at the 2017 Discovery Financial Planning Summit, Etienne le Roux, chief economist at Rand Merchant Bank (RMB), noted that although some recovery has been predicted in South Africa\u2019s growth (at 1% to 1.5% in 2018), in terms of per capita income growth, it\u2019s going nowhere.<\/p>\n
With inflation having peaked and food inflation in particular coming down, Le Roux pointed out that interest rates should, however, move down at some point, barring another external or domestic shock.<\/p>\n
The economist said that South Africa now holds the dubious honour of having the world\u2019s most volatile currency, so one needs to be brave to make currency forecasts and RMB\u2019s trading ranges are quite wide \u2013 from R12 to R15 to the dollar.<\/p>\n
\u201cIt\u2019s not much of a forecast, but it gives you an idea of where the risks sit,\u201d he said. The R15 scenario would be on the back of South Africa\u2019s credit rating being downgraded again, whereas the R12 scenario is if global improvements continue, local developments are positive too, and more capital flows into the country.<\/p>\n
The rand gave up 1.4% to the dollar in afternoon trade on Wednesday, to trade at R13.15, having reached R12.66 last week with hopes that the ANC’s NEC was going to recall president Zuma.<\/p>\n
Colin Coleman, head of investment banking for Sub-Saharan Africa at Goldman Sachs, said that South Africa has the propensity to rally.<\/p>\n
\u201cThe analyst median growth expectations for 2017 in South Africa are around 1%,\u201d he said.<\/p>\n
\u201cGoldman Sachs actually has quite a bullish forecast, based on global rebalancing and commodity price stability, of around 1.5% for 2017, and markets have largely priced in a ratings downgrade. We actually think disinflation expectations are market supportive. In particular, Goldman Sachs expects 50 basis points in cuts in interest rates from the SARB in the next 12 months.\u201d<\/p>\n
Coleman said the upside on a \u201cZexit\u201d or a Zuma exit, (based on his presidency coming to an end), should bring about a rally of closer to R11.50 to the dollar<\/strong> than the current R13.00.<\/p>\n On the downside, however, if both Standard & Poor\u2019s and Moody\u2019s cut the local currency rating to sub-investment grade and South Africa exits the Citibank World Government Bond Index, the country will lose somewhere around $7 to $10 billion of index-related funds, which will be forced to leave the country.<\/p>\n The rand will, over time, move more towards R14 to the dollar.<\/p>\n