4½ Threats To South Africa's Economy

Now that we are finally past the 8 May election, all eyes are firmly on the path forward. But a number of local and global threats could hinder our economic recovery.

- Lloyd Gedye

global stock markets lost $2tr in the month of May, as the growing trade war between the US and China continues to rock business confidence. At the same time the US threatened to apply tariffs on goods originating from Mexico, but later decided against it. For now.

South Africa, with its open economy and volatile currency, is a deer in the headlights. Still staring down the barrel of further ratings downgrades, the country recently reported a 3.2% contraction in its GDP for the first quarter of 2019 – the worst contraction since 2009, following the 2008 global financial crisis.

After the release of the first-quarter GDP numbers, the rand slipped by as much as 2% at one stage.

It has since recovered somewhat.

South Africa appears to be getting its house in order, says Mergence Investment Managers portfolio manager Peter Takaendesa. But only just in time to find the global environment deteriorating.

“The country has begun the turnaround,” argues Takaendesa. “It’s in motion, but the headwinds are strong.”

The ANC has added to the turmoil, with contradictory statements about whether it has or has not resolved to expand the Reserve Bank’s mandate to include job creation and is considering quantitative easing to deal with government debt.

It’s a nervy time for investors. But which risks to the local economy should really be front-of-mind?

THREAT ONE: TRUMP’S TRADE WARS US

President Donald Trump has declared the word “tariff” a beautiful word. After the month of May, many investors around the world probably see things in a very different light. During May, Trump raised tariffs from 10% to 25% on $200bn of Chinese goods imported to the US.

This brings the total of Chinese goods subjected to 25% trade tariffs to $250bn.