An Economic Outlook – Embracing a 35-year Low in Consumer Confidence

An Economic Outlook – Embracing a 35-year Low in Consumer Confidence

Despite being one of the most developed economies on the continent of Africa, South Africa has been one of the worst-affected areas by Covid-19.

In total, the country has reported more than 264,000 coronavirus infections, with this number accounting for nearly 50% of the total number of currently active cases across the continent as a whole.

In addition to the mounting human cost of the pandemic, South-Africa’s economy is also struggling under the sheer weight of case numbers. More specifically, consumer confidence in the nation sunk to a 35-year low during the second quarter, moving deeper into negative territory as a result.

Covid-19 and Socio-economic Performance – The Impact so Far

According to the precise data sets recorded by the consumer confidence index (CCI), this metric slumped to -33 points during Q2 after registering -9 points between the months of January and March.

Not only does this decline represent a 35-year low, but it’s also only three points shy of the all-time lowest confidence level of -36 recorded in 1985. This is a stark statistic, particularly as the last low was recorded during violent protests and disruption in a bid to end aparthied in the country.

This has had a dramatic impact on the South African rand (ZAR), which finally followed the trend of other emerging currencies by shelving its value as consumer sentiment and purchasing power declined.

More specifically, the ZAR sank to seven-week lows in the wake of the consumer confidence data release, mirroring the sharp decline of the Russian ruble as coronavirus cases have continued to soar in these locations.

This is certainly indicative of a wider and more permanent trend, with the MSCI emerging stocks falling from a four-month high against a sustained backdrop of uncertainty and socio-economic volatility.

Interestingly, emerging stocks and currencies have typically fared better during times of economic austerity and hardship (with the financial crash of 2008 offering a relevant case in point), but the mounting levels of debt in emerging economies and their cyclical nature of boom and bust has been accelerated by the coronavirus pandemic.

Is There Hope for the ZAR and the South African Economy?

There’s still hope for the South African rand, however, with this currency having performed relatively well against the greenback and the Euro prior to the crash in consumer confidence.

It has also managed to embark on an incremental recovery against these currencies (and the GBP) this week, with this likely to be extended over the course of the coming days.

Despite risk adjustments, the outlook remains favourable for the ZAR at present, thanks largely to sweeping governmental reforms and the relative strength of commodities in the South African region.

These positive measures, which include electronic voting reform and changes in the way that pension assets are managed, have certainly helped to improve socio-economic sentiment in the region.

It should also be noted that the recent restrictions imposed by the SA government as a way of curbing the spread of Covid-19 are unlikely to impact negatively on either the economy or the rand, with the proposed (but controversial) ban on alcohol sales and a nighttime curfew far less damaging than wider lockdown measures.

This is something for the economy and investors to hang on to, as they look to ride out the current socio-economic storm and build towards a more prosperous future.

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