Key points
- For now, the trade surplus continues to underpin the performance of the ZAR and lend it some support. However, the reasons for the trade surplus are not always as positive as they seem, and as SA extricates itself from its low growth trajectory, the improved economic performance will, over time, gradually undermine the effects of the trade surplus.
- That is not to say that the ZAR should not appreciate any further. If SA successfully implements reforms that boost consumption and investment demand, the trade account will not be as ZAR-supportive as it has been in recent years. That being said, positive steps to reform SA would go a long way to attracting foreign investors back to SA, especially if SA also manages to exit the FATF grey list next year.
BASELINE VIEW:
For now, a virtuous cycle is underway, underpinned by SA’s trade surplus, soft growth in credit extension, positive terms of trade and strong portfolio inflows into SA bonds. This holds the potential to support the ZAR through the year ahead, which should ensure that the virtuous cycle that has begun extends further to help SA into a more positive economic environment.
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