‘Free-floating currency’ is SA’s best shock absorber as recovery starts The currency is caught between two forces – massive liquidity globally and low-interest rates or zero interest rates all over the world and a domestic economy that is a mess
The key question on restarting the economy is what the shape of South Africa’s recovery curve will look like.
This has led to deep shocks – both from a supply and demand side – and this can be seen in jobless claims and requests in unemployment benefits. Another economic indicator has been the oil price. Adds Gracey: “We have to hope that we can find buyers for that debt, shape a quick recovery and begin to pay down that debt quickly. However, given we are unlikely returning to ‘normal’ and some well-established companies that have existed for decades are not going to survive, recovery is going to be long and arduous and so predicting its curve is impossible. All we can do is introduce measures to shorten the time frame of recovery.
“There are not enough global savings to support the debt issues coming from sovereign governments, and as a consequence central banks are going to have to remain active in buying up the government debt and as a result, inflate the balance sheet and corporate money. Evaluating currency levels relative to one another becomes difficult and forecasting where the rand ends up at the end of this year or even in five years’ time is a challenge.
Over the last 10 years, South Africa has had a very weak domestic economy with a deteriorating sovereign balance sheet and this lack of growth and the debt trajectory that threatens to take us off the fiscal cliff is impacted the rand.
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