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October : Economic doldrums will pass

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9 October, 2016

Economic doldrums will pass

Nedbank Chief Economist, Dennis Dykes
Nedbank Chief Economist, Dennis Dykes

Economists expect tough times in world markets for the next year or so, but are hoping for a "meaningful" upswing after that. 

This is one of the comments from Nedbank Chief Economist Dennis Dykes in an interview with the Dolphin Bay Brief last week.

"The current weakness globally has been in place longer than expected, but economists anticipate that gradually, over time, international activity will strengthen, and locally, interest rates will ease off and the much-forecast improvement to come through," he said.

The recent decisions by the US Federal Reserve to keep interest rates unchanged, and better news out of South Africa led to a firming of the Rand. With inflation in South Africa dipping below 6% and interest rates also unchanged in South Africa, "the economy is still struggling, but it looks a lot better than it did at the beginning of the year," he said. This follows months of extreme volatility, fuelled by local and global factors, including that our currency is extremely open to international trade. "The Rand can be bought and sold very quickly, in large volumes. We are one of the few emerging market economies where this is the case," Dennis said.

"Having said that, we have experienced much more volatility than anywhere else in the past year, and our currency is much weaker, due to the political uncertainty that has plagued our economy. Certainly, our exchange rate could become much more stable in the future, but that would need much more transparency and stable decision-making by our leadership."

In May, Dennis outlined the consequences of South Africa's economy being downgraded to "junk" status by international ratings agencies. It would take about five years to climb out of junk status, he said at the time.

In the interview, he pointed out that "all the agencies are saying that South Africa's leadership issues need to be sorted out."

In the recent interview, he outlined the upcoming political "hot points" for the local economy. "On the political front, all eyes will be on the ANC's elective conference next year and the possibility that it will be brought forward to June - although it is likely only to be in December, as scheduled," he said.

An "uneasy truce" now seemed in place between the presidency and Finance Minister Pravin Gordhan, but any change would have an impact on the Rand's value and our economy. 

Other events to watch included the Treasury's medium-term budget policy statement next month. Finance Minister Pravin Gordhan faced challenges including the need to placate investors and the ratings agencies, while also attempting to address local pressures including the Fees Must Fall university movement.

Another major issue was the prospect of a nuclear deal. Like other business leaders and economists, Dennis is "very firmly of the view that South Africa cannot afford it as currently contemplated."

Said Bertus: "The businesses of today cannot be run in isolation, as there are a number of forces affecting the performance of our businesses, whether we realise it or not. This means that is important for all modern business people to understand the ever-changing dynamics of our economy, in order to gauge the potential opportunities and risks we face. 

"Once again, thanks very much to Dennis for providing these insights, which are of great value to us all."

Source: Dolphin Bay Chemicals

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