About swallows and summer and rain
The growth in the global economy has been under estimated for some time now says Rian le Roux. Oil is sharply lower and the US Fed has stopped tightening. Added to which commodity prices are still high and could come off somewhat.
In terms of emerging market currencies there has been some stabilization and this shows that investors are not too worried there.
The dollar has weakened significantly in the recently past. Globally interest rates saw June as the turning point, and global tightening has slowed, and an indication that central banks may not be happy with global inflation- but they aren't unhappy.
Looking forward- globally- there are three scenarios, and as SA is a small trading nation, what happens internationally is of concern to the country and economists.
The base case is that the world is OK and the economies move sideways; the bullish case as commodity and precious metals increase, dollar weakens and rates flatten and fall.
Then there is the bear 1 option- there is a growth commodity hard landing, and a big cycle for SA, driven by global troubles, while bear 2 shows that there is a big SA cycle and we are driven by local troubles.
Le Roux maintains that we are in for a landing, but not a hard one, as the USA will slowdown but there wont be a growth collapse. In Japan, growth is slowing but the internal growth drivers are still in place, and its the same situation in the euro-area.
SA
In terms of SA's emerging market compatriots, they are still growing solidly, and the internal growth dynamics are still strong.
Locally, le Roux says that the cycle has finally arrived, and the inflation numbers have drifted up, although the fiscal situation still remains very healthy. The question in his mind is how severe the cycle is going to be, while he would welcome a rand fall. At R6 it was far too strong, and was unsustainable.
Monitoring the local economy is a real test at the moment he says, especially looking at an economy that is undergoing fundamental structural change.
Consumer spending locally wont collapse, and the SARB will hike rates in December. In fact the SARB has to hike rates, says le Roux. Inflation will peak just below 6%, and there could be 100bps increase in two tranches.
On the rands fall- le Roux says that the fall is moderate, in comparison, and at just 20%- its muted, although it is still vulnerable.
Essentially the local cycle will be muted, although the balance of payments levels may be a risk, specifically if infrastructure picks up, and he mentioned that capital inflows would surprise on the upside.
Le Roux says that the fiscal situation is healthy but stimulatory. Having said that the longer-term growth outlook is good, and it may well surge if and when infrastructure spending takes off.
The CPI numbers have just come out at 5%, which is higher than expected, as analysts were expecting 4.8%, so the case for a rate hike in December has been sealed, says le Roux.
