As mentioned, an uptick in Chinese manufacturing and investment has resulted in currency gains for South Africa in 2021 and 2022. It also resulted in a smaller fiscal deficit for South Africa, due to the windfall taxes generated from the high earnings of hard commodity exports. Given the expected consumption-led recovery as mentioned above, combined with the current dire state of the Chinese property sector, strong growth in Chinese demand for hard commodities this time around seems unlikely. News
headlines have noted that around half of the Chinese developers listed on the Hong Kong stock exchange
What do the dynamics discussed above imply for South African macroeconomic variables?
have defaulted since 2021 and all players in the Chinese property sector are struggling to get access to new funds.
We, therefore, expect that the ZAR will be shaped by factors, not necessarily related to Chinese growth, in the year to come. In this regard, the trajectory of US interest rates is likely to continue to play a role in local currency dynamics, but its effect would likely dissipate towards the end of 2023 as global interest rate decisions moderate. Locally, issues such as load-shedding frequency and intensity, the political landscape before the 2024 general elections, and the recent South African greylisting would also affect currency movements. These issues are explored in more detail to the right:
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