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The 2020 US elections set for November 3 could have a direct influence on the South African economy, especially when considering the political expectations of the two candidates, says Dr. Greg Cline, head of corporate accounts at Investec for Business.
“Global geopolitical events will be definitive in the coming months,” Cline said.
“The November US elections are also likely to have a domino effect on trade, which has seen a strong recovery, despite the trade war that has led to the diversion of trade flows out of China and the US and to the blockade caused by Covid-19. “
While both candidates, Joe Biden and Donald Trump, will remain tough on trade with China, Trump, for the most part, is likely to continue to focus heavily on tariffs. As such, markets can probably expect a further escalation in the trade war, should he be re-elected, Cline said.
“The Biden administration does not appear to be overly critical of some of the trade agreements that have been established with respect to China,” he said.
Most importantly, the Africa Growth and Opportunity Act (AGOA), a centerpiece of the economic trade partnership with South Africa and the United States, expires in 2025.
“While trade transactions worth $ 9 billion are estimated to take place between the two countries, the Trump administration has reviewed the agreement and identified South Africa as restrictive and as such the renewal of the agreement in its current form would not be guaranteed under a Trump administration. “
Despite the uncertainty, Cline said that ‘we are now in a growing economy’ and while it is far from pre-Covid levels, there is a slowdown in economic downturn, but significant changes in US policy could. pose inherent risks to South Africa’s economic growth and trade. .
“Currency risk appears to be contained at the moment,” Cline said. The case expected by Investec for the USD exchange rate forecast is R16.50 per dollar for this quarter with an advance of R16 level by the end of the year, he said.
“Given that South Africa is a trillion rand import economy, this may provide a comfort level for those who expect the rand to weaken considerably further. Although export prices have been attractive this year, the expectation is that the import market will recover in line with the rand ”.
Expect higher volatility
The supply side of the curve is well on the way to recovery, but the economic pivot depends on assistance with the demand curve.
However, Cline said that historically market volatility has increased before elections due to knee-jerk reactions to election results.
“We are always going to be passengers of market movements and currency fluctuations on the back of international relations and the strength of the rand is a great determinant.
“While some may argue that South Africa is in a debt spiral, with the bond yield curve suggesting the potential for sovereign default sometime in the future, there is significant potential for Foreign Direct Investment (FDI) to materialize. through political certainty and sound fiscal policy locally and globally. “
“To this end, the prosperity of business locally is highly dependent on the ability to trade, coupled with a stable economic outlook, and it is our responsibility as business leaders to seek affirmation and build a vision of South Africa that is pragmatic by contemplating numerous global risks caused by factors beyond our control, ”he said.
Read: Here’s an alternative economic strategy for South Africa to double GDP and reduce unemployment to 12% by 2030
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