THE COVID-19 pandemic has yet again threatened to disrupt global supply-chains as China has put major cities in the mainland under lockdown for seven days over a new outbreak of infections.
This comes as South Africa’s government yesterday looked at ways to bring to an end the two-year-long National State of Disaster while putting in place some measures to keep Covid-19 at bay.
Over the weekend, China placed more than 17 million residents in Shangai and Shenzen under lockdown amid a flare-up of more than 3 000 new daily Covid-19 cases driven by the Omicron variant.
Shanghai is China’s biggest city and a global financial hub while Shenzhen, which borders Hong Kong, is the hub of China’s tech sector and electronics manufacturing industries.
Citadel Investment Services chief economist Maarten Ackerman said the lockdowns would add to already constrained global supply issues, especially the closure of harbour cities.
Ackerman said the backlog of cargo ships waiting to be offloaded at the Port of Oakland in San Francisco would probably increase over the next week even though congestion had started to ease.
“This is going to contribute to supply issues being with us for longer until China can trade freely and openly. And on top of that we are still sitting with the Ukrainian issue,” Ackerman said.
“All of this is unfortunately a cocktail that is creating an environment in which the world is facing a similar supply shock, for different reasons, to what we saw in the mid-70s.”
In the early 1970s, the global economy endured “stagflation” - the combination of high inflation and economic stagnation.
Ackerman added that the supply chain challenges would “definitely contribute to inflation globally” and, as a result of that, tighter monetary policy from central banks.
Markets largely anticipate that the US Federal Reserve will hike interest rates during its Federal Open Market Committee meeting on Wednesday, as inflation remains a growing concern.
Investors are now betting the South African Reserve Bank could have to respond to price pressures fuelled by the rising oil price with a 50-basis-point hike in interest rates next week.
China is South Africa’s biggest trading partner and exported goods worth $1.91 billion (R28.7BN) in 12 months to November 2021, a 26.1 percent increase or $396 million from a year before.
Top exports of China to South Africa were cellphones, computers, furniture goods, synthetic hair, and rubber footwear.
The news of a new lockdown in China dragged down the major equities indexes yesterday, with Asian markets trading mostly lower on investors worries.
The Hong Kong's Hang Seng index dropped more than 5 percent led by Chinese tech companies as the new Covid lockdown in Shenzhen put further pressure on the sector.
Stocks at the JSE also fell as the All Share Index plunged more than 2.8 percent to around 71 575 points, its lowest since Christmas Eve.
The JSE was dragged down by Naspers and its subsidiary Prosus, which owns a 29 percent stake in Tencent, following reports that the Chinese technology giant faces a potential record fine.
Meanwhile, the rand remained subdued but performed well to touch R15.04 against the US dollar supported by higher valued commodity exports and interest rates hike expectations.
Investec chief economist Annabel Bishop said the rand’s performance was driven by improved market sentiment to South Africa as risk aversion has differentiated across emerging markets.
“Substantial interest rate hikes continue to be anticipated by SA’s markets, also providing rand support, with inflation high globally and elevated locally, and the recent rapid acceleration in commodity prices having pushed up inflation expectation,” she said.
BUSINESS REPORT ONLINE