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A brief economic outlook for 2018
Occasional Contributor

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The outcome if the ANC’s elective conference may have been a favourable one for the rand and market watchers but despite this, SA Inc isn’t out of the woods just yet.

Economically, this week we’re expecting an announcement from the SARB on Thursday. Bloomberg consensus is the rate is unlikely to be changed at 6.75%. Our economics team’s outlook for inflation for 2018 is mellow owing to a stronger rand and a positive agricultural outlook for the year. Consumer inflation is expected to average 4.4% this year.

The MPC’s Quarterly Projection Model forecasts a 75-basis point rate hike by the end of 2018. The underlying assumptions behind this forecast being the Bank will chase 4.5% inflation and a neutral real rate of 2.2%.

Despite these projections, our research team is of the view that the Bank will be hesitant to change rates ahead of the Budget Speech and Moody’s credit rating outcome. This is to avoid their decision colliding with the possibility that the aforementioned events may have a negative impact on the rand. Our team expects a 25bps rate cut for 2018.

On the rand front, our research team foresees sustained rand strength due to lower expectations from the global landscape.  Capital flows into emerging markets are very likely to be robust. In South Africa, Cyril Ramaphosa stepping into the presidency has restored much needed confidence. The rand should be kept in the strong zone – but there are several risks worth keeping an eye on.

The first is a slowdown in growth for the Chinese market. Investors should also pay attention to US numbers, as higher inflation may mean central banks will be tinkering with monetary policy to keep inflation under control.

Domestically, there are factors that are likely to affect the current account – namely the implementation of President Zuma’s free education announcement made late last year. This is likely to be a key part of the budget speech. We’re yet to hear news of how, exactly, this is to be achieved.

That said, our global currency strategist’s forecasts for the dollar for 20018 tell of a weaker dollar over the next two years. This view is informed by the US move to protectionism, the new tax laws which will result in tax cuts and a subsequent widening of the budget and trade deficits.

The Euro is expected to go in the opposite direction as…

Given the context above, the rand is forecast to hit the R12.50/$ by the end of 2018 and R12.70/$ by the end of 2019. Against the pound, a slight decline to R17.50/£ by end 2018 and R19.30/£ by end 2019. The euro/ZAR will fall a bit more sharply to R16.25/ € by end 2018 and R17.17 € by end 2019.

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