Economic outlook, both globally and locally, is expected to continue to improve on more positive developments pertaining to Covid-19 vaccination, says Nedbank. The bank said that this will support investor sentiment and drive financial assets into emerging markets with relatively higher yields as major countries are not likely to start tightening policies soon. South Africa will be one of the beneficiaries, which will support the rand and put the Reserve Bank in a better position to accumulate reserves, while gold reserves will continue to benefit from precious metal’s safe-haven status. The pace of financial inflows will be undermined partly by the country’s poor sovereign risk ratings, while the level of reserves’ import cover will be reduced by a higher import bill, which would be pushed up by a revival of local demand for capital and durable goods.
Global forces will be supportive of further rand appreciation, with rock-bottom interest rates in advanced countries, ample global liquidity due to aggressive quantitative easing, and a recovering world economy likely to drive risk appetites and capital flows to most emerging market economies. Rand is still about 7.5% undervalued based on purchasing power parity, but the margin has narrowed substantially over November. The recoveries, in mining and manufacturing output, gathered pace over August and September, while some upward momentum also emerged in retail sales over the same period. The economy is not subjected to another level 5 lockdown, the recovery should continue at a more moderate pace in Q4 and beyond, supported by low-interest rates, some employment growth and the normalization of economic activity across the globe. Nedbank said it has revised its real GDP forecasts for 2020, 2021 and 2022 to -8.1%, 3% and 2.2% respectively – from -9%, 2.7% and 2.1% previously.