Johannesburg - South Africa’s economic outlook for next year was positive with a foundation laid by better prospects for commodity prices coupled with the strengthening of the rand as emerging market economies improved, Investment Solutions chief economist Lesiba Mothata said on Monday.
Mothata said the multimanaged investment-related services provider believed that inflation could reach 5 percent by the middle of next year. The rand was likely to firm on stronger commodity prices and ongoing inflows into emerging markets and equities.
“Emerging markets remain commodity producing, and the valuation for emerging markets is favourable relative to developed markets. We may continue to see strong flows into emerging markets.”
“Base effects on maize and food prices are high, but if we start calculating for next year, that number will come down,” he said, adding that the SA Reserve Bank was likely to ease its policy. Mothata’s comments come as South Africa dodged the junk bullet after S&P Global Ratings announced last Friday that it had cut the country’s local currency rating to BBB, the same level as the foreign currency rating. It also kept the outlook on both ratings as negative.
Economic reform
Mothata said the reprieve might see policymakers find new ways to look at economic reform. “As opposed to macro they may look at micro issues that include focusing on municipalities and we may be surprised at the traction gained as a result of the olive branch we have received from ratings agencies,” he said.
In terms of the global economy, Mothata said US president-elect Donald Trump was likely to spend $1 trillion (R13.7 trillion) over the next 10 years on infrastructure including ports and airports. This could translate into gross domestic product (GDP) growth in the US of 3.5 percent from the current 2.5 percent the world had been accustomed to.
“If you are building bridges and roads, you need commodities Trump has spoken about climate deals that are being constructed, and there is a fear of a global trade war.
“He spoke about the benefits of the African Growth and Opportunity Act.
“Around 70percent of exports to the US are minerals and energy-related products. In the past 15 years, countries that benefited are firstly Nigeria, secondly Angola and third South Africa. The deal is worth $50 billion.”
Read also: Zuma congratulates 'Team SA' on maintaining rating status
Earlier yesterday Mark Lindhiem, the chief Investment officer of Investment Solutions, said because of the tough trading conditions, just chasing high returns was not viable. “Investors have to take a multi-strategy approach to investment, by combining traditional and alternative investment strategies,” he said.
Investment Solutions head of the global portfolio team Adam Bulk said that investment decisions were changing and that the energy and material sector had grown in the year under review.
“We do not know how long this will last, we have to remain cautious about this Perhaps the market is getting ahead of itself,” he said.
“You see similar trends in the local market in basic resources in the mining sector have done better this year than any other said,” Bulk said.