Jitters over global pace of recovery roil markets.
IMF warns on challenges facing commodity exporters such as SA.
The rand was the worst-performing currency against the dollar yesterday, weakening more than 2% as investors fretted over the global economic outlook, while the International Monetary Fund (IMF) warned there were greater challenges facing commodity exporters such as SA.
Poor economic data from the US — after disappointing jobs figures last week — weak import data from China and Europe’s continuing woes have roiled global markets, leading investors to search for safe-haven assets such as Japan’s yen.
The rand, one of the most liquid emerging-market currencies, shed as much as 2,1% against the dollar, falling to R8,02/$1 — its lowest level since mid -January. The currency, despite its strongest start since 2003, is now only 0,7% firmer this year.
“There’s discomfort about the pace of the recovery of the global economy,” Kevin Lings, Stanlib chief economist, said. “The global economy is going to remain a problematic recovery story.”
Of 18 emerging market currencies tracked against the dollar, the rand was the worst performing yesterday, when only two currencies traded in positive territory.
Commodity-exporting nations faced the risk of lower prices in coming months and should work to protect their economies, the IMF warned yesterday.
“Given weak global activity and heightened downside risks to the near-term outlook, commodity exporters may be in for a downturn,” the IMF said in its World Economic Outlook report.
“If downside risks to global economic growth materialise, there could be even greater challenges facing commodity exporters, most of which are emerging and developing economies.”
The Washington-based IMF said the priority for exporters was to focus on saving revenue from commodities to use as a buffer when prices fall. Such policies were more effective when countries had an inflation target and a flexible exchange rate, according to the report.
If oil prices rose because of geopolitical risks, that would trigger a global slowdown that could push down the price of other commodities, the IMF said.
“Under a permanent increase in the commodity price, the key challenge is how best to use the permanently higher royalties to maximise welfare,” the IMF said in the report.
“Conversely, if prices were to fall permanently, cutting general transfers could best limit the output shortfall, although the social welfare impact of such cuts must be taken into account.”
While commodity prices have opened the year stronger, recent economic data have driven the prices of copper, platinum and gold lower as investors fear low demand. Yesterday China, which buys 14% of South African exports, reported a trade surplus as import growth trailed forecasts.
French business confidence stagnated and factory output dropped.
The poor economic data have also renewed concern about Europe’s sovereign debt crisis, with Spain struggling to rein in its deficit in the wake of additional austerity measures.
The JSE all share index closed 0,3% lower, and is now 2,4% off its record high reached last month.
European stocks fared much worse, with the main stock indices in the UK and Germany down over 2%, while France’s CAC 40 index was more than 3% lower.
US stock markets were all trading in the red hours after opening yesterday.
Source: Business Day