Uncertainty after last week’s release of poor economic data in the US flowed over into the new week.
The dollar weakened on Friday’s news that the US unemployment rate had risen from 9 percent to 9.1 percent, and the rand made early gains yesterday. It reached a best level of R6.67 a dollar before retreating to be bid at R6.7505 at 5pm.
The JSE all share index dropped at the start, in line with markets in the East. After a choppy day the index closed little changed at 31 578.03.
European markets also stuttered. Bloomberg reported: “European stocks retreated for a fourth day, the longest losing streak in almost three weeks, amid growing concern the economy is weakening.”
The fortunes of the global economy are closely linked to those of the US – so there are implications for domestic growth if the world’s largest economy stalls.
Friday’s news about weak US jobs growth followed disappointing numbers on US manufacturing and consumer confidence earlier in the week.
As a result, the euro hit a one-month high, according to Reuters, “heading towards $1.50, an upward march that could bring commodity prices and emerging market currencies along with it”.
Barclays Capital said it had revised down its US gross domestic product growth forecast for the current quarter to 2 percent from 3.5 percent, and the third quarter to 3 percent from 3.5 percent. The US economy grew only 1.8 percent in the first quarter.
Against this backdrop, financial markets expect US interest rates to remain close to zero for the foreseeable future, hence the weak dollar and the relatively stronger rand.
However Jean-Francois Mercier, a South Africa economist at Citi, had encouraging words.
While many economists expect a sustained slowdown in the US economy, “with potential ramifications for the rest of the world”, Citi economists believe US growth “will probably reaccelerate in the second half, when the negative but temporary impacts of earlier (petrol) price hikes and Japan-driven disruptions to auto production have faded”.
Soaring oil prices, earlier in the year, squeezed consumers’ ability to spend on other goods and services and hampered industrial production.
Mercier said South Africa could grow close to 4 percent both this year and next, “provided global growth remains on track”. Barclays Capital forecast growth of 3.8 percent for South Africa this year.
Statistics SA last week reported that first-quarter growth was an unexpectedly high 4.8 percent.
Interest rates are on the agenda globally this week as the policy committees of the European Central Bank and the Bank of England meet. Both are expected to keep rates on hold.
In South Africa few expect a change when the monetary policy committee meets next month. Although inflation is expected to breach the ceiling of the bank’s 3 percent to 6 percent target range by the end of the year, economic growth is still seen as fragile. - Business Report