Autus CEO, Dominic Ilett, share insights on global and domestic macro factors in our final quarterly review of 2021.
The final quarter of 2021 provided a mixed bag of positive factors to celebrate as well as opposing negatives that continue to cause concern. A standout feature was the peaceful, free, and fair municipal elections held in November. Our maturing democracy is a model to many developed and emerging countries around the world. With the support for the ruling ANC declining, the future of SA’s politics will be anything but dull.
As we move to a “COVID-19 – new normal,” there is general acceptance that the virus could be with us (albeit mutating) for a lot longer that we would prefer. Positively, increasing vaccine rollouts, booster shots and better health management of those infected with the virus has lowered the hospitalisation rate and ultimately the death rate. As we write this report, SA is in the middle of a fourth COVID wave, but the economy has remained on Alert Level 1 with most economic activities operating unhindered (last year readers may recall that the beaches were closed over the December holiday period!). Fitch Ratings surprised the market by revising the outlook on South Africa’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDRs at ‘BB-,’ due to better-than-expected tax revenue collections.
SA mining companies had a bumper year as profits soared due to increased global demand for commodities and concomitant higher commodity prices. CPI inflation crept up to 5.5% in November, pushed higher by rising fuel and food prices. GDP growth turned negative for Q3/2021 registering -1.5% q/q seasonally adjusted, as the July social unrest and lockdown restrictions to combat the third COVID wave derailed the economic recovery. Forecasts are that in Q4/2021 the SA economy will show an improvement and that for the year GDP growth of between 4.5%-5% is likely. The SARB’s Monetary Policy Committee (MPC) decided to hike the repo rate by 0.25% to 3.75% at its mid-November meeting. The MPC cited inflation risk as an important factor, emphasising that the current trajectory of interest rates remains supportive of the economic recovery. Stats SA reported that at the end of Q3/2021, SA’s official unemployment stood at 34.9%.
The Organisation for Economic Co-operation and Development (OECD) warned that the emergence of Omicron increased uncertainty already weighing on global economic outlook and highlighted vaccination shortcomings. The main risk to the global economic outlook is continuous rising inflation. The global economy is now expected to expand by 5.6% in 2021 (previous forecast was 5.7%). Global growth is expected to moderate to 4.5% in 2022 and 3.2% in 2023. While the global recovery continues to progress, there are signs that it is losing momentum and is becoming increasingly imbalanced. The US Federal Reserve met in December and announced that they will reduce the quantum of financial accommodation it has been providing to markets and that three interest rate hikes are likely in 2022. They opted to remove the word “transitory” to describe inflation admitting that rising prices could prevail for longer than first thought.
Matt Maher said “In order to move forward you need to look back.” At Autus Fund Managers, you can be sure that we understand the importance of doing both.
