Economic and market snapshot for September 2018
In Momentum Investments’ view, an acceleration in structural reforms is imperative to resolve the country’s stark inequality problem.
GDP increased by 3.1% in the fourth quarter of 2017 in quarter-on-quarter seasonally-adjusted terms and printed significantly higher than the consensus forecast for a 1.8% rise.
Global equity markets tumbled 7.5% by the second week of February 2018 on concerns that higher-than-expected inflation would lead to a more rapid tightening of interest rates by the US.
In an immediate reaction to the budget announcement, the rand appreciated by 0.8%, while SA government bond yields (R186) rallied by 9 basis points.
A favourable inflation trajectory leaves room for modest monetary policy easing in upcoming months.
Firmer growth expectations, higher revenue collection and deeper expenditure cuts should support faster fiscal deficit reduction in the medium term.
Challenges acknowledged, but hopes raised for an economic overhaul.
Global equity markets had a stellar start to the year. The MSCI All World Index gained 5.6% by the end of January 2018, supported by a robust performance in developed and emerging markets.
The South African Reserve Bank Monetary Policy Committee views the potential for additional sovereign rating downgrades and volatility in international oil prices as the main risks to setting monetary policy.
The stage looks set for a continued, broad-based expansion in the world economy in 2018.
Fundamentals and valuations should continue to support the outperformance of global equities over bonds in 2018.