South Africa’s economic performance for the coming quarters is likely to be weak, says Investec chief economist Annabel Bishop.
Bishop said the second, and particularly third, quarters of the financial year are usually a weak period for the rand as trade thins in riskier assets, including emerging market currencies and portfolio assets.
The rand is currently sitting at R17.07 to the dollar, from R16.97 late last week Friday (8 July), with the strengthening dollar edging closer to being on par with the euro (R17.17/€).
The rand is also being affected by negative sentiment on both international and domestic events, said Bishop. International investors over this financial quarter remained the net sellers of South African government bonds at -R0.1 billion.
Domestically, severe load shedding has also worried markets over the country’s growth prospects, which in turn risks negatively impacting state finances via revenue generation, said Bishop.
International investors sold off R3.6 billion of South African equities in the last two days alone, she noted.
Last week, R4.3 billion in government bonds were also sold over the period of two days. This follows R3.6 billion of government bonds being sold in total over the whole second quarter of 2022, added Bishop.
“Load shedding continues in South Africa, with the business day impacted by the harsh stage 4 electricity outages, while the extreme pressure unions brought to bear on the state-owned electricity utility is seen as negative from a political as well as economic perspective.”
Speaking on Monday (11 July), Eskom’s chief executive officer said the power utility currently faces total unplanned outages of 14,487MW. He added that Eskom is forecast to have a capacity shortfall for much of the current week, with alternating load shedding stages to be introduced in the coming days.
Market worries over high inflation are increasingly being replaced by fears of excessive interest rate hikes that drive economies into recession, Bishop said.
Bishop said risk sentiment across the global financial markets is currently fragile and risk-averse.
The publication of higher-than-expected US payroll figures and the low unemployment rate at 3.6% resulted in there being a spike in market concern for continued severe US rate hikes in the coming months, said Bishop.
A division of the US Federal Reserve, the Federal Open Market Committee (FOMC) predicts a further 175 basis point lift.
“The markets are expecting a 185bp lift and so are fairly aligned to the FOMC communication, but market players worry that the anticipated rate hikes, which will take the fed funds rate well above its neutral level and so will dampen economic growth, will prove overly negative.”