Some reasons to take heart The forecast for 2016 was quite bleak. Now, with the first quarter behind us, some factors have materialised that are brightening the outlook.
january 2016 was a very depressing start to the year. The US, the last remaining bastion of growth in an otherwise decelerating world, was slowing faster than expected. The decline of fracking jobs and growth, together with a rampant riskaversion-driven dollar and a slowing global economy, was hurting its exports.
That, combined with ongoing concerns around a Chinese hard landing, was all that skittish markets needed to give up 10% to 20% of their value in a matter of weeks.
South Africans, meanwhile, who had previously thought they were depressed, were also reeling in the aftermath of the finance minister switch debacle, and gradually coming to terms with just how depressing things could actually get.
Needless to say, investors who in 2015 had already punished the rand on the back of our current account deficit and our commodity economy, could add dodgy domestic decision-making to make up the hat-trick of reasons to sell, and the rand was hammered, from R14.60 in December to R17.78 to the US dollar in January 2016.
Adding to the cocktail of political woes was the fact that there seemed to be forces at work who had not fully understood the economic destabilisation and potential collapse from events in December. Via certain state institutions, they appeared intent on pressurising the renewed steady pair of hands on the country’s financial controls into resigning.
After all that, you probably need some good news. And the good news, very simply, is that with the first quarter of 2016 now safely behind us, things feel better. Which is by no means saying 2016 is going to be great, but we could certainly take comfort from a number of developments.
Firstly, US growth is going to be okay. Nothing more. US Federal Reserve Chair Janet Yellen is dovish, surprisingly so, which means two rate hikes this year rather than four, and that should be bad news for the US dollar and good news for emerging-market currencies, including the rand.
On top of that, with the Bloomberg Commodity Index having reached a 25-year low, the fact that the oil price is back around $50 per barrel indicates that there is some life out there. Commodity prices have responded accordingly, and many may even have troughed. It is amazing how closely global economic sentiment and equity markets have followed the direction of the oil price.
Granted, much of this is driven by artificial and unsustainable central bank economic life support. However, it’s better than nothing, and if it helps in any way to relight some economic growth flames, it’s to be welcomed.
It’s always important to remember, both in good but particularly in bad economic times, that everything goes in cycles. The world will grow again, demand for commodities will return and with a demographic pension time bomb approaching a yield-starved developed world – in which investors are currently receiving no return if they’re lucky and, in the case of a third of eurozone bonds, a negative yield – emerging-market yields should eventually lure investors back. Already, emerging-market outflows have turned flat, and in some cases flows have even been positive.
Back home, the weaker rand is narrowing our current account deficit, while the finance minister is narrowing our budget deficit.
Commodity price stabilisation and a hopefully already-peaked US dollar are also favourable for our equity markets and the rand.
Politically, we need to get our act together, and fast. The ratings agency threat is real. Very real. We shouldn’t be here. We find ourselves in this position through the unfortunate actions of a few who, as the finance minister puts it, “are more interested in their personal business interests than those of the country”.
The good news is that those with corrupt intentions are being exposed as never before, and their web of dirty deals is being unravelled − literally on a daily basis.
The previously hostile relationship between government and big business has thawed and looks set to yield positive results through closer co-operation. The budget was sensible, the Constitutional Court ruling showed that not all state institutions have been “captured” and government is saying all the right things about privatisation or “equity partnerships”, promoting investment, growth and jobs.
The momentum of those politicians looking to act in the interests of our country is growing and will hopefully soon overwhelm those who think otherwise. It has to. The alternative is too ghastly to contemplate. And we don’t need to change government. You can create a dream cabinet out of the ANC – we just have to put the right people in the right positions. Although a few swallows do certainly not signify a summer –the rand has already retracted from R17.78 to around R15 in a matter of months – both economically and politically 2016 looks set to be slightly warmer than originally forecast.
And the good news, very simply, is that with the first quarter of 2016 now safely behind us, things feel better.