While many blame December’s sudden depreciation of the rand, which plummeted from R13.92 to the dollar to almost R17 to the dollar, on President Jacob Zuma’s sudden firing of then Finance Minister Nhlanhla Nene, and on US Federal Reserve chairperson Janet Yellen’s decision to increase US interest rates one week later, the main catalyst for the depreciation of the rand was, in fact, something that occurred two months prior, believes Rebalance Fund Managers chief economist Chris Harmse.

Speaking at an event hosted by data specialist PiLog on Thursday, Harmse noted that China had announced an unfamiliar purchasing managers index in October, stating that the country went from 50.1 points to 48.4 points.

“That announcement almost pushed the world’s economy into a recession,” he said, adding that available data regarding this type of information was very important.

Harmse went on to point out that the International Monetary Fund (IMF) had already cut its forecast for the world economy four times this year.

“Latin America expects 0.6% economic growth this year, while sub-Saharan Africa is looking at 3.4% growth. The IMF has cut South Africa’s economic growth down to 0.4% this year,” he added.

Harmse noted that Russia, Europe and Japan should also expect an economic recession this year. Citing their IMF forecast, he highlighted that the total world economy would only grow by 3% this year, down from 5% the previous year.

“Not only will we see low economic growth rates, we will see low to negative inflation rates. A negative inflation rate is worse than a positive inflation rate. The US saw a 1.0% inflation rate at the end of June, the EU saw a 0.2% inflation rate and the UK a 0.5% inflation rate. Japan is already in deflation-rate territory,” he noted.

He explained that the problem with low economic growth, and low to negative inflation rates, was that governments worldwide would not be able to do anything to stimulate growth, adding that a major current fear was that the world’s economy was not going to be able to kick-start itself again.

“Economies are not growing, there is no demand in the economy and people are not buying, while Brexit remains an issue. We currently have a world economy with low economic growth, no inflation and we do not have economic policy measures to stimulate growth in the global economy,” he said, adding that South Africa is no different.

Harmse highlighted that these factors had led to financial market volatility, which could ultimately incite fear in government, the public and businesses.

Moreover, he noted that the chances of South Africa’s credit rating being downgraded to junk status after being reviewed in December would be dependent on four data points.

Harmse highlighted that if the US Federal Reserve was to further increase its discount rate, the rand would turn around and weaken again, while import prices would increase, and the South African Reserve Bank would increase the repo rate.

“If that happens, South Africa is not going to have positive economic growth and will be downgraded in December,” he said.