Looking ahead to the remainder of Q4 and early 2019 the outlook for the South African economy looks decidedly muted. Despite weakening against a basket of other currencies in the first half of 2018, the South African Rand has steadily rebounded in the foreign exchange markets since the start of September.
The rebound however is likely to be short lived with several factors contributing to a weaker outlook for the South African economy and in turn, the Rand.
In their ‘South Africa Quarterly Perspectives’ ABSA lower their GDP growth forecast to 0.5% and 1.4% for the remainder of 2018 and 2019 respectively, attributing the revision to, “ongoing constraints on the consumer and persistently low business confidence. The government’s stimulus plan is welcome, but is unlikely to significantly move the needle on growth near term.”
Amongst the constraints, ABSA point to specific challenges facing consumers including, “chronic weakness of the labour market” and “huge petrol price increase this year, up 24.1% from its March low”
Alongside this headline CPI inflation is expected to rise in coming months and peak at around 5.5% in 2019 according to the forecast, “The…effects of higher sales taxes, rising crude prices and a weaker rand have so far been muted, but we expect these to add some upward pressure on core inflation. Food price inflation could also rise, especially if early signs of an El Niño event results in a harsh drought. A further upside risk to the inflation outlook is the uncertainty around electricity tariffs for next year.”
General elections, expected in Spring of 2019 are likely to add a modicum of uncertainty to the economic outlook with the current ruling (ANC) party appearing divided. Despite predicting the ANC is likely to retain its control of the Government, uncertainty in and around elections tends to spell misery for the associated currency’s market value.
All in all the expectation is for the ZAR to deteriorate in the FX markets, “We believe that persistent bond and equity outflows coupled with weak domestic fundamentals and deteriorating terms-of-trade will weigh on the ZAR.”
At the time of writing the South African Rand has, since September staged a recovery against a basket of other currencies, not least the Sterling where Brexit concerns sparked a 3.14% decrease in the GBP/ZAR yesterday alone.