Rand declines while SAA and Eskom are bailed yet again

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One of the key take-aways from the budget speech is the R60.1 billion set aside for financially struggling SOEs.

The Rand and SOEs

Over the next three years, Eskom will receive R112 billion to meet financial obligations while R16.4 billion has been set aside for SAA to repay debt and interest costs. Eskom’s inability to keep up with power demands has slowed productivity which has been detrimental to the economy. The mismanaged entity has required financial assistance numerous times over the past 12 years, and once again this flat SOE needs a recharge. No load shedding was expected over the past weekend, but Eskom has warned the public that the risk always remains that it could be implemented at short notice.

Another major talking point is the proposed wage cut in the public sector. Treasury seeks to cut R160 billion off public sector wages over the next three years, which is likely to cause major disruptions in the future. Trade unions have already threatened to protest if pay cheques are not kept in check.

The Rand and the coronavirus

The coronavirus continues to keep economies subdued. The World Health Organisation has warned that it is highly likely that the virus could spread to every country in the world. Struggling emerging market countries will be hit hardest due to unhealthy living conditions in some areas and poor medical infrastructure. According to the Department of International Relations and Cooperation, there are about 199 South Africans in Wuhan, of which 132 wish to be repatriated. The South African government is planning to repatriate all South Africans. As precautionary measure they will be placed in quarantine for 21 days.

The GDP growth rate for the last quarter of last year is being released today. In the third quarter of last year South Africa’s GDP contracted by 0.6%. The GDP for the fourth quarter is expected to display a second consecutive term of negative growth of about 0.4%, which will confirm that South Africa is officially in a technical recession. Later this month, Moody’s is expected to review South Africa’s rating, and a second recession in the space of two years might be the tipping point.

Market event calendar

Tuesday 3 March

• South African GDP growth rate (YoY) Q4: Expected at -0.2%
• South African GDP growth rate (QoQ) Q4: Expected at -0.4%

Wednesday 4 March

• Australian GDP growth rate (QoQ) Q4: Expected to stay at 0.4%
• Australian GDP growth rate (YoY) Q4: Expected to increase to 1.9%
• Brazilian GDP growth rate (YoY) Q4: Expected to be 0.4%
• Canadian BoC interest rate decision: Expected to remain unchanged at 1.75%

Thursday 5 March

• Australian balance of trade for January: Expected to decrease to AU $4.9 billion

Friday 6 March 

• Canadian balance of trade for January: Expected to decrease to CA $-0.7 billion
• US non-farm payrolls for February: Expected to decrease to 115,000
• US balance of trade for January: Expected to rise to US $ -45.8 billion