These are dynamic times in which few things remain the same for long. What surprises could await us these next six to twelve months?

Externally, there has been plenty of warning of a long period of near zero interest rates at the global centre (America, Europe, Japan) while growth and yield remains most attractive in the periphery (Asia, Latin America, other Middle Eastern and African commodity producers).

These past six months this condition has pushed global equity and bond prices higher, while favouring a steady liquidity leakage from the global centre to the periphery, giving many emerging asset markets a double leg-up while also firming their currencies.

The main likelihood for the next twelve months (or longer, bearing in mind the evolving nature of the shaping global expansion) is that these processes will continue. By implication expect more asset price gains, especially in the global periphery, even when interspersed by periodic pullbacks. Also, there should be more emerging market currency appreciation unless actively countered through policy action (for instance observable in China).

Global forces have boosted JSE equities

Since March this year, these global forces have boosted JSE equities by 40 percent and the Rand by 30 percent. There could be further gains in the year ahead, even if their progress will likely be volatile.

Internally, however, we may be building up towards a set of circumstances that will see even bigger changes, potentially hugely surprising ones.

In micro space one may want to monitor the Patel/Manuel interface and the Eskom electricity resolution, while in macro space it is fiscal and monetary policy, with all these areas affected by the Rand’s behaviour (the external influence).

Whereas the Patel/Manuel trade-off could be centered on providing a few billion Rand in subsidies here and there for select troubled companies or sectors, add a zero for the impact of Eskom’s electricity tariff doubling. Potentially add two zeroes for the impact of any macro surprises in a R2.5-trillion economy.

Whereas the availability of state aid will undoubtedly be important to specific companies or sectors in trouble (that is if the various policymakers can reach agreement about what needs to be done and actually doing it), by far the greater impact will come through in the energy sector and then especially at macro policy level.

R70-billion less tax revenue

Key sectors of the economy are affected by inadequate demand, higher electricity charges, wage cost pressures and a firmer Rand, in some instances cripplingly so.

As things stand, capacity utilization in manufacturing remains low near 80 percent; labour market slack has increased substantially due to job losses, new entrants and returning migrants; company earnings and household incomes have suffered (often grievously); and this is reflected in R70-billion less tax revenue than budgeted.


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