Forecasting with the experts
Econorisk partnered with wealth management specialists, Citadel in Johannesburg to host the April #RiskSeries. Politico-economic trend analyst, JP Landman and Citadel’s Head of Fund Research and Portfolio Manager, Yolanda Naudé considered the threats and opportunities facing global and local economies, as well as taking a look at financial markets.
Here is the key take-out from the breakfast meeting.
Clockwise from top left: Guest speaker, Citadel’s Yolanda Naudé with John Marsden – Managing Director: Citadel Financial Protection.
Top right: Econorisk’s Andrew Crichton and CEO, Guy Scott.
Bottom: This collaboration was a first for Econorisk and Citadel. While both businesses operate at different spectrums of risk, hosting the event together was valuable to shared clients – as explained here by MC, Ian Bishop – Director and Regional Head: Citadel Johannesburg.
Trend analyst, JP Landman looked at what South Africa needs to do in order to achieve economic growth success.
The top-line from Landman’s presentation:
The real end-game to success = moving SA from traditionalism to modernity (politico-economically speaking).
Two pillars of success
- ‘Get richer’ by growing our economy i.e. rising per capita incomes.
- A dynamic ‘open society’ – curbing government power; having checks and balances in place.
Five golden rules on how to increase growth
- Rule 1: High savings and investments: Zero points on that score for South Africa.
- Rule 2: A committed, capable and credible government:
South Africa scraped together half a point on this rule – thanks only to the relief of the last few months under our new President. - Rule 3: Using the market system to allocate resources: SA is possibly halfway to achieving this.
- Rule 4: South Africa scored for having a stable macro-economic environment.
- Rule 5: Embrace the world!
When it comes down to what our country is offering to sell, and whether we are ticking the right boxes regarding what the world actually wants – then South Africa scores strongly (e.g. tourism).
International Growth Panel’s scorecard for South Africa:
Under President Cyril Ramaphosa, the score has improved to 3 ½ out of 5
Citadel’s Yolanda Naudé shared insight on what probably lies ahead for the global economy and financial markets:
Global equity markets have seen a pull-back in the first quarter of 2018 due to some good news during February such as the strengthening of the US Employment Cost Index. Yet this caused a scare regarding possible upward pressure on inflation, and consequently on short-term interest rates in America. The pull-back was also due to some less positive news during March about seemingly escalating trade tensions between the US and China.
On the health of the global economy, after some weakness (due primarily to the sharply rising oil price over the last year, and its impact on inflation) in the first quarter of the year, a recovery is expected on the demand side of the economy, which includes retails sales. Consumers globally are confident, willing and able to spend.
If you assess the global supply side of the economy by the level of manufacturing activity, then global supply is strong (but more so in developed markets than in emerging markets) according to the quarterly Global Purchasing Managers’ Index for Manufacturing. South Africa’s manufacturing sector is still lagging the rest of the emerging market peers.
US recession risk: fairly low
- Particularly in terms of US consumer confidence (which is still strong) and monetary conditions (which are still accommodative, despite the short-term interest rate hiking cycle that has commenced in that economy).
- The US leading indicator currently shows no sign of recession, but Citadel is keeping a close eye on the US unemployment rate and on the US yield curve (which depicts the difference between long-term and short-term interest rates in the US).
Overall Citadel recession scorecard for United States:
5 out of the 9 indicators that Citadel monitors, currently show moderate to low recession risk for the US.
Global recession risk: low
- On the back of the US recession risk assessment, economic indicators still point to strong global growth momentum going into 2018. This is likely to continue for the next 12 months but with some growth disappointment expected in 2019.
- Emerging market growth is stabilising and this overall global macro-economic environment is generally supportive for commodity prices.
While South Africa is benefiting from leadership changes and the return of confidence; structural challenges and risks remain.
Between the lines
A recent World Bank Report on poverty and inequality in South Africa confirmed the alarming fact that inequality has increased in our country since the end of apartheid in 1994 and that we are still one of the most unequal countries in the world. 40% of our population still survives on less than +/- R800 per person per month.
Accelerating the reduction of poverty and inequality will require unlocking the full potential of labour markets and promoting inclusive growth through skills creation. Business plays a major role in addressing inequality and will continue to have positive and significant impact.
The lens of pessimism
One of SA’s biggest threats to success however, is our own lens of pessimism. South Africa currently ranks No 1 out of 38 countries on the misperceptions index. We are the least accurate people in the world when it comes to having perceptions about our own country!
There are no illusions as to why we may tend as South Africans to view things with less than rose tinted glasses – it has been an uncomfortable journey. But there is no doubt that we are pushing ahead in an open society to build an economy that will improve with a more capable, committed and credible government.
Optimism is essential “It’s all very good for modernity – the real end-game to South Africa’s success,” says JP Landman.
Econorisk’s strategic, risk assessed, calculated forecasting means the difference between a reactive vs. proactive approach to our clients’ commercial and domestic business.
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