Wow, us South Africans really have been treated to such a joyous start to a new year. From electricity shortages to drought, weak global demand, plunging metal prices and Zuma’s mouth, the latest news is we’re moving closer to a recession and possible credit-rating downgrade to junk status. Oh, and not to forget our bestie China’s economic plummet.
Thanks JZ, you and your cronies will be the only ones laughing to the bank.
The rand plummeted by 9% since 2008 and, as Africa’s second-largest economy, that’s not so good. Dropping to a new record low of R17.9169 against the dollar on Monday, both the market turmoil in China as well as a drop in US stocks deterred investors and risk-taking.
Yet how do we ease the crisis? Well, not even policy makers have an answer as they are running out of options. The rising inflation may force the Reserve Bank to be more aggressive in tightening policy, suffocating the already stifled economic growth.
With large parts of the economy already in recession, it looks like a certainty that the economy will contract.
I have no doubt in my mind that we will be downgraded to sub-investment grade. The reality is that our fundamentals, which were already under pressure last year, have now been pushed over the tipping point by the dramatic weakening of the exchange rate.
Bets by investors in the country have increased on the odds that “the Reserve Bank will raise the repurchase rate by more than 25 basis points on January 28 to protect the credibility of its 3% to 6% inflation target band. Consumer prices rose 4.8% in November from a year ago.”
The drought story has definitely got worse, maize prices are up at very high levels so food inflation is going to be one of the major themes and very problematic for the Reserve Bank. Our economy has been so decimated over the last couple of years.