What Impact Will 2018 Have On South Africans And Their Rands

Economic Forecast For 2018

With the year now in its last stretch for 2017, it’s time to pack up, wrap up and settle those 2017 business plans, budgets and forecasts and focus on the year to come.

For expats with two feet in different borders, it’s important to keep an eye on the economy not merely from a local perspective – but to assess the state of global finance, and how this will impact your assets in different jurisdictions and currencies.

Global Economic Forecast For 2018

Despite numerous ups and downs in the world economy over the past few years, most analysts are of the mind that 2018 should be a relatively favourable year overall.

After some subpar growth in previous years, the International Monetary Fund has predicted a generally better performance overall for the World’s economy in 2018. Some analysts believe the slightly better forecast for 2018 is based mainly on most of the political upheavals – such as Brexit, important political elections and so forth – to have been creased out slightly and the tremors of such big shocks to have subsided somewhat. Nevertheless, global financial services firm, Morgan Stanley, has warned that 2018 will be a tricky road ahead for world economies. One needs only take a glance at political news around the globe to know that Morgan Stanley’s assessment is most probably the most accurate.

The greatest problem in determining economic forecast is perhaps the vast disparities in how analysts and economic firms aggregate data, what they base their analysis on and how they believe political and economic policymaking will impact the state of the respective nations.

On the upside, China and India, seem to be facing another boom in the next year, with its economic growth predicted by Bloomberg economists to be in the region of 7% and 6.4%. respectively. Morgan Stanley, on the other hand, warned that economists should consider the uncertainties surrounding Chinese policymaking – and how the country’s economy has been rather obscured from analysts in general. The firm believes Chinese economy would slow down and not see the growth predicted by other economists. The firm has a similar view of India, whose economic growth had been declining slowly since 2016.

There are some pitfalls yet to be overcome elsewhere in the globe. The UK, in particular, is facing some stagnation. The country’s economic forecast has been rather varied – with analysts not quite agreeing on where its heading. The country’s 2017 growth had been placed at a mere 1.6% by the Organisation for Economic Co-operation and Development (OECD), which has cut its 2018 forecast to a mere 1%. In stark contrast to the exiting EU member, the EU economy has seen a 2.3% GDP growth in 2017 (well above its 1.9% forecast) and is expected to see further 2.2% economic growth in 2018 – higher than its initial forecast of 1.7%.

The EU’s economic performance has been ascribed to stronger private consumption, higher foreign investment in its member territories and lower unemployment – phenomena which many attribute to the withdrawal of the UK from the union. In fact, although Teresa May’s UK government is said to aim for transition deals with the EU, many believe that the EU would snub her efforts which would impose hefty tariff hikes and custom checks on trade between the UK and EU – further boosting the EU economies at the expense of the UK’s. Foreign talent currently working in the UK is also systematically experiencing a shift, with many workers opting for local jobs. The EU may see further growth attributed to investment sentiment shifting slowly but surely from the US to Europe. Andre Sheets of US firm Morgan Stanley is one of the economists who have urged clients to opt out of US corporate bonds in favour of EU bonds and energies.

But of course, the waters are not all calm within EU seas. This is particularly evident for Spain – whose 40-year headbutting with Catalonia had come to a head in October 2017. Just as Catalonians claimed their independence from Spain, the Spanish responded with an immediate declaration of direct rule on the autonomous region. 

The problem for Spain is mostly that 90% of Catalans had voted in favour of their independence – making it all the more contentious that the Spanish decided to sack the Catalan president mere hours after this declaration. As a democracy, this move does not sit well for Catalans or the rest of the democratic world. By far the biggest impact of this strife is on the growth of the Spanish economy. Its GDP growth projection had already fallen 0.5% for 2018 by the start of the crisis and, should Catalonia succeed in its Spexit, Spain will essentially lose 20% of its current economy. A Catalan exit from Spain would see the country lose one of its most productive and wealthiest regions, which may point towards its immediate intervention.

Another economy which is facing repercussions of political instability is Germany, where current chancellor, Angela Merkel is facing significant crises after failing to secure a coalition government in November 2017. As the EU’s strongest economy at present, the instability of its reigning powers could very well force the country into snap elections, and we all know where such swift elections could lead. Regardless, political analysts have stated that Merkel may not have any choice in the matter if she’s to retain her seat on the German throne. Despite the political blunders playing out in the EU’s strongest economy, Germany’s projected growth is still strong, and most economists and analysts have not dropped their positive outlook for the country – mostly given its steady performance in the 3rd quarter of 2017.

With German and Spanish rollercoasters now speeding up in a mad frenzy, the world is looking to France to calm political waters.

Further afield, Canadians seem to be the only ones consistently holding their poise at the G7 party. In fact, Canada had outperformed all other economies forming part of the G7 in 2017 by raising its April to June forecast of 3.7% to 4.5% and reaching an overall annual economic growth rate for 2017 to 2.8%. The country’s growth has been attributed to lower unemployment rates, higher export gains and increased construction activity.

Russia is another powerhouse which is expected to see stronger performance in 2018. Bouncing back from a strong economic decline in 2014, with the collapse of the ruble, the country had seen sharp growth in 2016 leading to a modest and steady growth in 2017. It’s no secret that the Russian GDP has been on the decline, but given that this decline has been slower than expected – from 0.6% to 0.2% for 2017 – this has boosted the country’s overall economic growth; up to 1.8% from 1.4% in 2017 and 1.6% from 1.4% for 2018 according to the IMF.

When we travel across the continent to the southern hemispheres, New Zealand’s GDP growth forecast sees an economic boom in 2018 which is projected to decline in subsequent years. Although the economy is expected to see better growth in 2018, it had seen a steady decline in the past two years which is expected to plateau further from 2019. The shrinking economic growth has been attributed by the New Zealand treasury to lower net migration inflows, rising interest rates and levelling-off in trade. The exorbitant prices of real estate which have supported investment growth is also seen to further lower the economic growth due to previously mentioned migration inflow decline and its correlating population growth decline which would see a lower interest in housing demand.

The US has seen steady growth of 2.5% for 2017, but it should be noted that this is 0.5% below the expected growth – attributed to an ageing population, political upheaval and a continued high unemployment rate clashing with a similarly continued push for minimum wage hikes. Morgan Stanley has also warned that the US economy is likely to slow down. One of the greatest concerns for foreign investors when it comes to the US is the indication that the economic giant’s sentiment with regards to foreign trade relations are becoming increasingly conservative. Within country borders, concern is of a more local nature as President Trump’s promised 4% labour force growth has not hit its mark – and yet economists have warned that such a growth could very-well lead to a boom-and-bust scenario which could see a recession in 2018. Such a recession may be spurned on by a change in forex trading as the Federal Reserve’s announced intention to raise interest rates which is not yielding the expected currency strength which traders require – which will undoubtedly make them bet on alternate currencies. One thing investors will also bear in mind is the little matter of the US’s largest foreign creditor being China – who owns 30% of the country’s international debt. It may not have been such a controversial matter had it not been clear that the countries are, and have always been, at significant odds with each other on most any prominent social, political and economic issue.

Australia – although not pegged to see unprecedented economic boom, will experience a steady growth over the coming years. The country’s GDP growth is expected to see a its average annual GDP growth increase by 0.25% to 1.5% on current rates in 2018, and see a further 0.25% to 1.25% growth added to those figures in 2019 according to the Australian Reserve Bank. The cautiously optimistic outlook for Australian economy is backed mostly by a surge in business investment and net exports in past months. The country is seeing persistent demand for commodities driving its economy. Local expenditure is not quite as certain, as household consumption has not matched economic growth thus far – mostly due to global economic unrest, local wage concerns and the steady increase in housing prices, although economists are hopeful that stronger labour markets could push consumption by increasing minimum wages.

Another hopeful in the eastern hemisphere is Singapore, whose economic forecast for 2018 is looking particularly sunny compared to other countries, The economic growth has been attributed to a sustained increase in global electronics demand, according to the Monetary Authority of Singapore (MAS). The World Bank also raised its growth forecast for the East Asia and Pacific region in 2018 – predicting a 6.2% overall economic growth for countries in the region.

In the Americas, the world has seen a mostly rose-tinted growth when looking at its strongest economy, Brazil, over the past years. But we’d be wise to take off those rose-tinted glasses and scrutinise the country with a more objective eye. The country currently faces one of tits greatest political crises, following the revelation of widespread collusion between its largest oil company, private corporations and the government. None other than its own president had been fingered in the corruption scandal. Of course, this is nothing new for South Africans, but Brazil seems to be taking a far harder stance in dealing with purported criminals involved in this scandal. Unfortunately, irrespective of how punishment will be handed out, the scandal has had a devastating impact on the country’s economy. Take for instance, the net-profit crash of one of JBS – the world and Brazil’s largest meatpacker – whose profits slumped with a devastating $172m from $270.5m in September 2016 to $98.5m in September 2017. Consider also that Brazil’s unemployment has skyrocketed – from 6.5% in 2015 to 13.6% in 2017.

Another South American “upset” of sorts, had been playing out in the country of Honduras, where a scene reminiscent of the US elections saw an unexpected spike in voter counts in favour of the the TV-star turned opposition leader, Salvador Nasralla in the presidential elections. In fact, the sudden turn of the election results had been so controversial that officials had inexplicably stopped the vote count entirely for a full 24-hours. The move had caused such widespread unrest that authorities were compelled to institute an immediate military-enforced public curfew following national outbreaks of violence and rioting.

It’s not all bad news for the Americas, though, as Argentina offers a silver lining for these territories. The IMF has lauded President Mauricio Macri’s economic reform of the past years as one of the greatest efforts to boost a country’s economy and encouraged him to continue this reform for persistent growth. The country saw a 2.75% economic growth in 2017 and is expected to see a further 2.5% growth in 2018.

How Does South Africa’s Economy Look In 2018

If you still have some rands left in RSA borders, the news is unfortunately not quite as rosy as it appears for the rest of the world.

Although the country’s economy is expected to pick up slightly in 2018 and even more so in 2019 – such positive outlook has dark clouds hovering over its horizons as any growth will be guided by the political atmosphere preceding the 2019 national elections.

The country’s financial status will be further impacted by government expenditure which simply doesn’t correlate to is budget. In fact, South Africa’s fiscal shortfall  for 2017/2018 had increased from 3.1% to 4.3% pointing towards grave issues in how its spending vs. income deficit.

Although “credit rating downgrade” has become a rather mundane buzzword in South African economic narrative, the phrase has not been paired with many positives in the past few years – and we should not expect it to do so anytime soon. Although Moody’s had placed the country on another tentative seesaw of suspense until its budget speech of 2018, credit ratings agencies S&P and Fitch have both dumped South Africa lower into our pits of credit despair, with junk investment ratings in 2017 – ratings which have not been raised or improved by either agency.

The country has managed, however, to somehow claw its way back from ruin a few times – but economists warn that our outlook should be a long-term one. Instead of considering how we might not have slipped as far as expected – we should look at the compound impact of regression, stagnation and waning investment. For even if we could somehow diminish economic decline in 2018, we’d achieve this right before one of the most important elections of democratic South Africa in 2019.

So whereto with your money?

In line with the abovementioned predictions for 2018, it would be wise to restructure your investment portfolio and move funds to countries, industries and portfolios with a positive or stable outlook. This, of course – seems to be focused in the Eurozone (provided Germany can clean up its act), clean energies and the East Asia and Pacific territories.

One may also look to Australian and New Zealand for a more stable investment. By all accounts these two countries seem to offer investors far safer growth given the socio-political unrest further afield.

Advice for Rand Rescue readers

Rand Rescue specialises in moving our clients’ funds across borders and assisting them in choosing the right time, route and “destination” for those funds. Of course, this means there is no one-size-fits-all solution as the choices for your individual financial portfolio would be very much unique and personal.

We therefore encourage all our prospective and existing clients to contact us for a free consultation where we’ll help you determine the best route for your rands, other currencies and assets.

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