There is no reason why the recent volatility in the stock exchange, the gold price, the value of the rand and the bond market should negatively affect South Africa, said President Thabo Mbeki.
Since early May, the rand has lost 8% or 9% of its value and the JSE has lost a similar amount, he said in his weekly newsletter on the African National Congress website.
”The question therefore arises whether we should, accordingly, be concerned that the economy will not deliver on the promise mentioned by [Minister of Finance] Trevor Manuel at the beginning of the year?
”Our answer to that question is ‘no’,” Mbeki said.
For the past three years or so the world economy has grown strongly. Africa and South Africa has grown strongly too.
One reason for this strong performance has been unusually low inflation and interest rates in many countries, which encouraged businesses to invest and consumers to spend.
Another reason is the very rapid and continuing growth of the two most populous countries in the world, China and India. The contribution of these two countries to world growth in the medium-term is expected to remain strong.
This will keep commodity suppliers busy as China and India invest in roads, railways, harbours, airports, telecommunications, houses, bridges, energy, water, sewerage, factories, farms, mines, health and education.
The improvement of living standards in these countries, and others, such as Russia, Brazil, Indonesia and Nigeria will also fuel world consumption.
Consumption levels on average in China and India are considerably below average consumption levels in South Africa today.
”Thus, even catching up with our level of consumption, assuming true global economic integration, would make a truly massive impact on the world economy.
”Because the foregoing is true, and taking into account other factors, we must understand that the volatility we have seen represents a correction in the commodity and equity markets, rather than a response to long-term negative changes in the global economic fundamentals,” Mbeki said.
This reality has been underlined by the fact that for countries, including South Africa, where the macro-economic conditions — the fundamentals — were sound, the impact of the current global downward volatility has been limited, and seems likely to stay that way.
In fact, several emerging markets seem to be growing faster than expected, and some growth forecasts have been raised.
It is not surprising that conditions are somewhat volatile. The world is experiencing a very strong growth cycle. Prices of assets such as property and shares are high.
”Our readers do not have to be economists to see that the value of shares traded at the JSE trebled in three years,” he said.
It is also important to understand that the recent falls in value affecting the rand and the JSE are pretty much in line with comparable emerging markets.
Brazil, Russia, Poland, Indonesia, Hungary and Mexico have all, like South Africa, lost between 8% and 12 p% of value in the same categories over recent weeks.
”South Africa has therefore not negatively been singled out among the emerging markets. There is no reason to expect that it will be.”
The underlying and decisive reason for the sensitivity of markets is that, globally, there is a considerable volume of savings chasing good investments.
”South Africa has been a major beneficiary of this global phenomenon, thanks to our strong economic fundamentals, the stability and credibility of our macro- and micro-economic policies and our transparency and predictability with regard to our entire system of economic and political governance.
”Net capital inflows into the JSE since the beginning of 2005 rose to over R100-billion by May 2006. Such an inflow of capital is quite without precedent in South Africa’s history.
”To all this we must add that our economic future will be decided by our own fundamentally strong economic fundamentals,” Mbeki said. — Sapa