Weak rand seen boosting vehicle exports
The current weak rand is expected to provide a boost to vehicle exports, especially from the second half of 2014, says Econometrix director and chief economist Dr Azar Jammine.
He says the recuperating US and European economies mean that South Africa’s export markets are “gaining some traction”.
Tracking the rand and vehicle exports, he says, it appears that South African vehicle exports usually gain momentum about a year after the rand has deteriorated.
Jammine says the rand is 30% cheaper than it was two-and-a-half years ago, which “must be a huge competitive advantage, as long as costs are not allowed to rise too much”.
He believes the currently “incredibly cheap” rand will end the year at around R10.80 to the US dollar – it was around R11 . . . R11.20 in early February.
He says the rand could end 2014 at below R11 to the dollar, even if “it blows to R12” in the short term, as such a dramatic weakening will again lure investors to the local market.
He also does not believe that the rand will worsen from its current position “a year or so from now”.
However, he does warn that he is not forecasting a recovery to R8 or R9 to the dollar, owing to South Africa’s massive trade deficit and dependence on capital inflows.
Jammine expects inflation to rise to between 6% and 7%, but not much more, especially owing to the Reserve Bank’s pre-emptive move recently to increase the prime rate by 0.5%.
He expects other 0.5% rate hikes in March and May, which “will be enough to keep a lid on inflation”.
However, rising interest rates are bad news for the local automotive industry, as every 0.5% increase in the interest rate spells a 2% decline in vehicle sales.
In light of this, Jammine says he expects zero per cent growth in new vehicle sales for 2014, which he regards as a “year of consolidation”.
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