EDITORIAL: Duck to avoid being hit by dodgy crystal balls
Global volatility highlights need to fix local economy, and quickly
This year analysts have had to take a shorter period than usual before throwing away their forecasts. They’ll probably blame Donald Trump, the volatile and unpredictable US president.
Reading any analyst note towards the end of 2019 looking forward into prospects for 2020, the Middle East hardly featured. And when there was a nod to the East, it went all the way to China.
Would the world’s second-largest economy maintain enough stimulus to keep itself ticking along, and therefore providing support for other emerging markets?
While there were still question marks, discussion of its trade dispute with the US tended to be biased on the positive side, with the countries having put the starting blocks to a potential comprehensive agreement.
So while the outlook could hardly be said to offer fireworks, it was largely seen to be bright, underpinned by steady growth in the US, stable interest rates and subdued movements in currency markets. For SA, this would have been the type of benign environment we needed as we face our many challenges.
There’s been tension between Iran and the US ever since Trump decided to abruptly take the US out of the 2015 nuclear agreement the Islamic nation signed with Western powers and reimpose sanctions. Events of the past week mean that agreement is all but dead and it is anybody’s guess how Iran’s relationship with the West will evolve.
Investors could hardly be blamed for not foreseeing the killing of Iran’s Gen Qassem Soleimani on January 3 by the US, under orders from Trump, who not long ago was dangling the prospect of negotiations. In fact, it was the prospect of that rapprochement that reportedly led to the resignation of John Bolton, Trump’s former national security adviser, a notorious Iran hawk.
Just to get a sense of how volatile and unpredictable US foreign policy has become under Trump, one just needs to look back at the relationship with North Korea, formerly a member of George W Bush’s “axis of evil”, which coincidentally also included Iran and Iraq.
Less than three years ago Trump was threatening North Korea’s Kim Jong Un, whom he belittled as “rocket man”, with “fire and fury”. In those days market volatility spiked at the prospect of a proper escalation between nuclear nations.
But then Trump accepted a summit with Kim. Their agreement to work towards “denuclearisation on the Korean Peninsula” has largely come to nought, but the two leaders have maintained warm relations.
So it wasn’t inevitable that a few days into 2020, the world would be facing the prospect of a war with Iran, with impossible to predict consequences for the region and the global economy. It’s still not clear what motivated the initial attack and what the US’s endgame is.
As of Wednesday, Iran, which had vowed painful revenge on its old enemy, had retaliated by launching a missile attack but was reportedly careful to ensure that it didn’t hit any US troops.
It’s no big shock that the markets are finding the situation hard to assess, and that’s been reflected in the moves in the rand. In the wake of Soleimani’s killing, it slumped with other emerging-market currencies, ending with its biggest weekly drop in two months.
This week so far it has shown a bit more calm and actually managed to eke out a small gain over three days, despite the Iranian attack on US bases in Iraq. That Iranian action initially saw oil futures spike about 5% but that soon faded. For now the markets seem to be counting on both sides’ desire to avoid a full-blown crisis that actually disrupts oil supplies.
But analysts who were publishing reports just before Christmas will hardly feel confident about making new predictions for 2020.
The only advice one can give President Cyril Ramaphosa and his ministers is that they shouldn’t count on the international environment to shield them from the consequences of their non-action. The uncertain international environment just highlights the need to get our house in order and fix our finances.
As it is, we are standing exposed with limited room to respond to any shocks the global market throws at us.